Title: Exchange Rates and International Finance
Course: Macro Quiz Test

Q: People or firms use one currency to purchase another currency at the ________.
- international currency exchange
- foreign currency exchange
- foreign exchange market
A: foreign exchange market

Q: The foreign exchange market is where the purchase and sale
- of foreign goods takes place.
- of foreign stocks and bonds takes place
- of foreign currencies takes place.
A: of foreign currencies takes place.

Q: One of the following groups is not participating in the foreign exchange markets. Which one?
- Boston business firms trading goods and services with firms in France.
- International investors buying bonds issued by a German car manufacturing firm.
- International investors buying part-ownership of a mining operation in Afghanistan.
- An Iowa travel firm that arranges vacation tours for local seniors to Hawaii.
A: An Iowa travel firm that arranges vacation tours for local seniors to Hawaii.

Q: In the foreign exchange markets there are groups that are excluded from it. Which of the following scenarios highlights one of the excluded groups?
- New York law firms trading services with firms in Germany.
- International investors buying stocks of an Egyptian shipping company.
- Canadian investors purchasing ownership of a ranching company in Chile.
- An Ohio auto parts manufacturer that sells its goods to car manufacturers in Michigan.
A: An Ohio auto parts manufacturer that sells its goods to car manufacturers in Michigan.

Q: The most commonly traded currency in foreign exchange markets is the
- euro.
- Chinese yuan.
- British pound.
- U.S. dollar.
A: U.S. dollar.

Q: Which currency on the foreign exchange market is the most frequently traded?
- Swiss franc
- Japanese yen.
- Australian dollar
- U.S. dollar
A: U.S. dollar

Q: Aurora buys South African Rand in preparation for her visit to South Africa. This transaction takes place in the
- international trade market.
- international investment market.
- foreign exchange market.
A: foreign exchange market.

Q: If MassImports and Co needs Argentine Peso to purchase 1 million pesos worth of leather goods from Argentina, given an exchange rate of $1 = 20 Argentine Peso, it will need to exchange ________ on the foreign exchange market.
- $20 million
- $200,000
- $50,000
A: $50,000

Q: Foreign direct investment is the term used to describe purchases of firms in another country that involve ________.
- internationally traded goods across countries
- the exchange rate market
- taking a management responsibility
A: taking a management responsibility

Q: What term describes when business start up a new enterprise in a different country?
- portfolio investment
- foreign development
- foreign direct investment
A: foreign direct investment

Q: Portfolio investments are often made based on beliefs about how ________ are likely to move in the near future.
- interest rates
- foreign investment tax rates
- exchange rates or rates of return
A: exchange rates or rates of return

Q: Which should be considered when making portfolio investments?
- What the current interest rates are in the financial market.
- The performance of exchange rates or rates of return in the past.
- How likely the exchange rates or rates of return will move in the near future.
A: How likely the exchange rates or rates of return will move in the near future.

Q: A U.S. investment bank purchases stocks (shares) of Japanese firms on the Nikkei index. This describes a
- foreign direct investment.
- hedging.
- portfolio investment.
A: portfolio investment.

Q: If a U.S. car manufacturer opens a factory in Vietnam, this would be
- a portfolio investment.
- hedging.
- foreign direct investment.
A: foreign direct investment.

Q: U.S. Exporters and Co. are expecting to receive a large order in Japanese Yen in 6 months. As the value of the Yen may fall in the coming months, U.S. Exporters and Co. purchases a contract from an investment firms guaranteeing less than 3% difference between the current value of the Yen and its value in 6 months. U.S. Exporters and Co. is
- carrying out a direct investment.
- carrying out a portfolio investment.
- hedging.
A: hedging.

Q: U.S. Importers and Co. are expecting to place a large order in Chinese yuan in 6 months. As the value of the dollar may fall in the coming months, U.S. Importers and Co. purchases a contract from an investment firms guaranteeing less than 3% difference between the current value of the dollar and its value in 6 months. U.S. Importers and Co. is
- carrying out a direct investment.
- carrying out a portfolio investment.
- hedging.
A: hedging.

Q: Currency hedging is
- investing in foreign currency and profiting from fluctuations in exchange rates.
- firms buying gold to protect themselves against the loss of value of currencies due to inflation.
- the actions a firm will take to reduce the risk of fluctuations in exchanges rates when carrying out transactions in foreign currencies.
A: the actions a firm will take to reduce the risk of fluctuations in exchanges rates when carrying out transactions in foreign currencies.

Q: A British firm buys out a US software company to complement their product line. This is an example of
- hedging.
- carrying out a portfolio investment.
- carrying out a direct investment.
A: carrying out a direct investment.

Q: If the exchange rate between the U.S. dollar and the Argentine peso changes from $1 = 20 Pesos to $1 = 25 Pesos, then
- The U.S. dollar has depreciated against the Argentine peso.
- The Argentine Peso has appreciated against the U.S. dollar.
- The U.S. dollar has appreciated against the Argentine peso.
A: The U.S. dollar has appreciated against the Argentine peso.

Q: If one Argentine Peso buys $0.05 and then a month later buys $0.07, then
- The Argentine peso has depreciated against the U.S. dollar.
- The U.S. dollar has appreciated against the Argentine peso.
- The Argentine peso has appreciated against the U.S. dollar.
A: The Argentine peso has appreciated against the U.S. dollar.

Q: A business man travels to China on a regular basis and stays in the same hotel. After conversion in U.S. dollars, the price of the hotel room has been falling. You conclude that
- The U.S. dollar has depreciated against the Chinese yuan.
- The U.S. dollar has gained value against all other currencies.
- The U.S. dollar has appreciated against the Chinese yuan.
A: The U.S. dollar has appreciated against the Chinese yuan.

Q: If a currency over time buys fewer units on another currency, then
- that currency has appreciated.
- that currency has achieved purchasing power parity.
- that currency has depreciated.
A: that currency has depreciated.

Q: The exchange rate between the U.S. dollar and the euro is 1 euro = $1.25. Which of the following exchange rates show a depreciation of the euro?
- 1 euro = $1.35
- $1 = 0.7 euro
- 1 euro = $1.15
A: 1 euro = $1.15

Q: The exchange rate between the Swiss Franc and the euro is 1 euro = 0.8 Swiss franc. Which of the following exchange rates show an appreciation of the euro?
- 1 euro = 0.6 Swiss franc
- 1 Swiss franc = 1.35 euro
- 1 Swiss franc = 1.1 euro
A: 1 Swiss franc = 1.1 euro

Q: School is out for the summer and you decide to move from the U.S. to Italy. Your friend worked in Italy last year and rented a room for a month in Rome for $850 U.S. dollars. You arrive in Rome and rent that same room for $920 a month. What has happened to the U.S. dollar within a year’s time?
- The U.S. dollar has appreciated against the Euro in a year.
- The U.S. dollar has barely fluctuated the Euro in a year.
- The U.S. dollar has depreciated against the Euro in a year.
A: The U.S. dollar has depreciated against the Euro in a year.

Q: A student from China starts their second year at the University of Chicago. Last years tuition cost the student ¥310,697 (yuan) but this year her tuition cost her ¥307,697 (yuan). What has happened to China’s currency?
- The yuan has barely decreased against the U.S. dollar in a year.
- The yuan has depreciated against the U.S. dollar in a year.
- The yuan has appreciated against the U.S. dollar in a year.
A: The yuan has appreciated against the U.S. dollar in a year.

Q: If a tourist can purchase more Japanese yen than before for each U.S. dollar they exchange, then
- the Japanese yen has gained strength against the U.S. dollar.
- the U.S. dollar has lost strength against the Japanese yen.
- the Japanese yen has lost strength against the U.S. dollar.
A: the Japanese yen has lost strength against the U.S. dollar.

Q: If the Canadian dollar is strengthening, then
- Canada has adopted a hard peg policy.
- Canada has purchasing power parity.
- it has appreciated in terms of other currencies.
A: it has appreciated in terms of other currencies.

Q: If the U.S. dollar is appreciating that means it is worth ________ because it is ________ compared to other countries’ currencies.
- less; weakening
- less; a problem for international bankers
- more; strengthening
A: more; strengthening

Q: A depreciating U.S. dollar is ________ because it is worth ________ in terms of other currencies.
- strengthening; more
- a problem for exporters; less
- weakening; less
A: weakening; less

Q: If the following exchange rate goes from 1 GBP (British pound) = 1.3782 USD ($) to 1 GBP (British pound) = 1.85 USD ($), then
- the British pound depreciated against the U.S. dollar.
- the U.S. dollar appreciated against the British pound.
- the British pound appreciated against the U.S. dollar.
A: the British pound appreciated against the U.S. dollar.

Q: If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:
- the dollar appreciated against the yen.
- the yen depreciated against the dollar.
- the yen weakened against the dollar.
- the dollar depreciated against the yen.
A: the dollar depreciated against the yen.

Q: If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:
- the dollar depreciated against the peso.
- the peso appreciated against the dollar.
- the peso strengthened against the peso.
- the dollar strengthened against the peso.
A: the dollar strengthened against the peso.

Q: If currency A appreciates relative to currency B, then currency B
- appreciates against currency A.
- will match currency A
- depreciates against currency A.
A: depreciates against currency A.

Q: If the value of the euro falls compared to the dollar, which of the following is the likely outcome for the U.S. balance of trade with the EU?
- American imports from the EU fall.
- American exports to the EU rise.
- American exports to the EU fall.
A: American exports to the EU fall.

Q: If the value of the euro appreciates compared to the dollar, what is the likely impact on U.S. exports to the EU?
- No change.
- U.S. exports to the EU fall.
- U.S. exports to the EU rise.
A: U.S. exports to the EU rise.

Q: A stronger U.S. dollar typically
- increases demand on the U.S. economy.
- makes American exports cheaper.
- makes American exporters happy.
- makes imported goods and services cheaper.
A: makes imported goods and services cheaper.

Q: A weaker U.S. dollar typically
- increases US demand for imports.
- makes imported goods and services cheaper.
- hurts American exporters.
- makes American exports cheaper.
A: makes American exports cheaper.

Q: If the euro becomes stronger, which of these examples would that stronger euro benefit?
- Italian students studying in Denmark.
- Americans students studying in France.
- Swiss firms selling in the United States.
A: Swiss firms selling in the United States.

Q: A stronger euro is less favorable for:
- German tourists traveling abroad.
- Canadian firms selling in Germany.
- American tourists traveling in France.
A: American tourists traveling in France.

Q: If the British pound is strengthened, which of these examples would have the least to gain?
- Scottish firms selling products in the British Virgin islands.
- British tourist vacationing in Australia.
- U.S. tourist visiting London, England.
A: U.S. tourist visiting London, England.

Q: A stronger British pound is beneficial for
- U.S. exchange students studying in Britain with a U.S. scholarship.
- British firms selling goods and services in Canada.
- exchange students with a British scholarship studying in Canada.
A: exchange students with a British scholarship studying in Canada.

Q: Which of the following examples would benefit the most from the U.S. dollar weakening?
- U.S businesses selling in Asia.
- Mexican investors who have stocks in U.S. companies.
- France importing goods and services from the U.S.
A: France importing goods and services from the U.S.

Q: If the U.S. dollar weakens, which of the following parties will benefit?
- Countries exporting to the U.S.
- Japanese investors who have money in the U.S.
- U.S firms selling in Europe
A: U.S firms selling in Europe

Q: Indian businesses buying U.S. dollars to purchase American goods would
- Decrease the demand for rupees and increase the supply of U.S. dollars on the foreign exchange market.
- Increase the demand for rupees and U.S. dollars
- Increase the supply of rupees and the demand for U.S. dollars on the foreign exchange market.
A: Increase the supply of rupees and the demand for U.S. dollars on the foreign exchange market.

Q: If Philippine businesses are purchasing goods from the U.S. by buying U.S. dollars it would
- increase the supply of U.S. dollars and decrease the demand for Filipino pesos on the foreign exchange market.
- Increase the demand for U.S. dollars and Filipino pesos.
- increase the demand for U.S. dollars and the supply of Filipino pesos on the foreign exchange market.
A: increase the demand for U.S. dollars and the supply of Filipino pesos on the foreign exchange market.

Q: If Canada has a trade deficit with the US, then
- The demand for Canadian dollar should increase and the U.S. dollar should depreciate against the Canadian dollar.
- The supply for Canadian dollar should increase and the Canadian dollar should appreciate against the U.S. dollar.
- the demand for U.S. Dollar should increase and the U.S. Dollar should appreciate against the Canadian dollar.
A: the demand for U.S. Dollar should increase and the U.S. Dollar should appreciate against the Canadian dollar.

Q: What would happen if Mexico has a trade deficit with the US?
- The demand for Mexican peso should increase and the U.S. dollar should depreciate against the Mexican peso.
- The supply for Mexican peso should increase and the Mexican peso should appreciate against the U.S. dollar.
- The demand for U.S. dollar should increase and the U.S. dollar should appreciate against the Mexican peso.
A: The demand for U.S. dollar should increase and the U.S. dollar should appreciate against the Mexican peso.

Q: Which of the following represents an increase in the demand for U.S. dollars on the foreign exchange market?
- American tourists bound to Japan.
- Japanese firms selling goods to U.S.
- Brazilian investors purchasing bonds in the U.S.
A: Brazilian investors purchasing bonds in the U.S.

Q: Which of the following represents an increase in the demand for Japanese yen on the foreign exchange market?
- European tourists bound to Japan.
- Japanese firms selling goods to U.S.
- Brazilian investors purchasing stocks in Japan.
A: Brazilian investors purchasing stocks in Japan.

Q: What happens if stocks and bonds in Australia are more attractive than the ones in Thailand? ~formative
- The supply of the Thai baht would decrease while the demand for the Australian dollar would increase.
- The supply of the Thai baht would remain steady while the demand for the Australian dollar would rise.
- The supply of the Thai baht would increase as well as the demand for the Australian dollar.
A: The supply of the Thai baht would increase as well as the demand for the Australian dollar.

Q: If investments such as bonds and stocks in Great Britain are more attractive than the ones in South Korea, then
- The supply of South Korean won would decrease while the demand for the British pound would rise.
- The supply of South Korean won would stay the same while the demand for the British pound would rise.
- The supply of South Korean won would increase as well as the demand for the British pound.
A: The supply of South Korean won would increase as well as the demand for the British pound.

Q: If more foreigners purchase U.S. investments,
- the supply of dollars will increase and the dollar will depreciate.
- the supply of foreign currency will increase and the dollar will depreciate.
- the demand for dollar will increase and the dollar will appreciate.
A: the demand for dollar will increase and the dollar will appreciate.

Q: If Canada, one of the main US trade partners, goes through a recession,
- The Canadian dollar is likely to lose value relative to the U.S. dollar as Canadians import less from the U.S.
- The U.S. dollar is likely to gain value relative to the Canadian dollar because Canadians will import less from the U.S.
- The Canadian dollar is likely to gain value relative to the U.S. dollar as Canadians import less from the U.S.
A: The Canadian dollar is likely to gain value relative to the U.S. dollar as Canadians import less from the U.S.

Q: The foreign exchange market is different from other markets in the sense that
- there is no real product in the market.
- the supply and the demand are for all currencies combined.
- the supply and demand for currencies can change simultaneously.
A: the supply and demand for currencies can change simultaneously.

Q: Why is the foreign exchange market so different than other types of markets?
- The product in the foreign exchange market is not real products.
- All currencies are combined in their supply and the demand.
- Currencies behave differently as the demand and supply can change at the same time.
A: Currencies behave differently as the demand and supply can change at the same time.

Q: Many investors choose to invest in the US because interest rates in their country are lower than the ones in the U.S. As a result,
- The U.S. Dollar will depreciate as the demand for dollars decreases.
- The U.S. Dollar will appreciate as the supply of dollars decreases.
- The U.S. Dollar will appreciate as the demand for dollars increases.
A: The U.S. Dollar will appreciate as the demand for dollars increases.

Q: If the U.S. Dollar depreciates against the Swiss franc, a possible explanation would be
- the inflation rate is lower in the U.S. than in Switzerland.
- U.S. imports of products from Switzerland have decreased.
- American investors find better opportunities in Switzerland.
A: American investors find better opportunities in Switzerland.

Q: In April 2018, the exchange rate between the U.S. Dollar and the euro is 1 euro = $ 1.21. If in the following months, inflation in the euro zone is lower than the inflation in the U.S., then (other things equal) a possible exchange rate would be:
- 1 euro = $1
- 1 euro = $1.15
- 1 euro = $1.6
A: 1 euro = $1.6

Q: In May 2018, the exchange rate between the U.S. dollar and Britain is 1 pound = $ 1.35. If in the later months, Britain experiences higher inflation than the U.S. inflation, all other things being equal, what would a potential exchange rate be?
- 1 British pound = $1.5
- 1 British pound = $1.43
- 1 British pound = $1.22
A: 1 British pound = $1.22

Q: What is the term used when internationally traded goods have equal prices across countries?
- equitable pricing
- international pricing agreement
- purchasing power parity
A: purchasing power parity

Q: ________ equalizes the prices of internationally traded goods across countries.
- A floating exchange rate
- An international parity rate
- Purchasing power parity
A: Purchasing power parity

Q: What will happen to the Canadian dollar, according to the purchasing power parity, if an ounce of silver is priced at $17 in the US but can be purchased in Canada for CAD $32 with an exchange rate of $1 = $1.28 CAD?
- It is undervalued and should lose value against the U.S. dollar over time.
- It is in equilibrium with the U.S. dollar.
- It is overvalued and should lose value against the U.S. dollar over time.
A: It is overvalued and should lose value against the U.S. dollar over time.

Q: If an ounce of gold is priced at $1,000 in the U.S. but can be purchased in Mexico for MX $25,000 with an exchange rate of $1 = 20 MX$, then according to the principle of purchasing power parity, the Mexican peso is
- undervalued relative to the dollar and should lose value against the U.S. dollar over time.
- in equilibrium with the U.S. dollar.
- overvalued relative to the dollar and should lose value against the U.S. dollar over time.
A: overvalued relative to the dollar and should lose value against the U.S. dollar over time.

Q: If oil can be purchased in country A at a lower price than in country B, then citizens of country B will exchange their currency to purchase oil from country A and eventually,
- oil will become even cheaper in country A.
- the currency of country B will appreciate against the currency of country A
- the exchange rate will adjust to equalize the price of oil amongst countries.
A: the exchange rate will adjust to equalize the price of oil amongst countries.

Q: If oil can be purchased in country A at a lower price than in country B, then citizens of country B will purchase oil from country A to resell at a profit in country B. This process is called
- purchasing power parity.
- international trade agreement.
- arbitrage.
A: arbitrage.

Q: Calculating the gross domestic product for various countries using purchasing power parity exchange rate is
- more reliable as exchange rates fluctuations are included.
- less reliable as exchange rates fluctuations are included.
- more reliable as the impact of exchange rates fluctuations is reduced.
A: more reliable as the impact of exchange rates fluctuations is reduced.

Q: Purchasing power parity exchange rates are designed to
- make all exchange rates equal.
- allow trade to be beneficial for most countries.
- make the prices of goods across various countries equal.
A: make the prices of goods across various countries equal.

Q: As the result of exchange rate volatility
- contracts for currency exchanges are less risky.
- the banking and financial sectors receive protection from risks.
- economic activity can significantly fluctuate due to changes in trade patterns.
A: economic activity can significantly fluctuate due to changes in trade patterns.

Q: If there is exchange rate volatility it results in
- currency exchange contracts being less risky.
- financial sectors and banks receiving protection from risks.
- great fluctuations in economic activity because of trade pattern changes.
A: great fluctuations in economic activity because of trade pattern changes.

Q: A nation suffering from inflation would have a reason to welcome
- a wave of foreign investment.
- currency depreciation.
- currency appreciation.
A: currency appreciation.

Q: A nation suffering from high unemployment would welcome
- currency appreciation.
- higher inflation.
- a wave of foreign investment.
A: a wave of foreign investment.

Q: When exchange rates fluctuate it can greatly affect export and import activities. Any changes in the export and import activities can have an affect on the whole economy through changes in ________.
- aggregate supply
- domestic investments
- aggregate demand
A: aggregate demand

Q: Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________ in the economy as a whole.
- aggregate supply
- portfolio investments
- aggregate demand
A: aggregate demand

Q: If a government decides to use an expansionary monetary policy that lowers interest rates, it will increase consumer borrowing and invest demand. How do these changes shift the aggregate demand curve?
- It would shift AD to the left.
- It would hold AD in its current place.
- It would shift AD to the right.
A: It would shift AD to the right.

Q: Expansionary monetary policy lowers ________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________.
- rates of return; left
- exchange rates; left
- interest rates; right
A: interest rates; right

Q: If the goal is to decrease aggregate demand for an economy, a government can implement a tight monetary policy which ________ imports and ________ exports.
- increases; encourages
- grows; diminishes
- decreases: increases
A: decreases: increases

Q: A tight monetary policy can be used to decrease aggregate demand because it ________ exports and ________ imports .
- stimulates; increases
- reduces; stimulates
- stimulates; reduces
A: stimulates; reduces

Q: What could happen if the U.S. government implements an expansionary monetary policy to reduce interest rates?
- The policy will lead to lower exports and higher imports.
- The policy will lower investment and consumption levels.
- The policy will cause exchange rate depreciation for the U.S. dollar.
A: The policy will cause exchange rate depreciation for the U.S. dollar.

Q: If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:
- lead to higher imports and lower exports.
- lower levels of consumption and investment.
- cause the exchange rate for U.S. currency to depreciate.
A: cause the exchange rate for U.S. currency to depreciate.

Q: What is it called if a government allows the exchange rate to be set by the market as its policy?
- hard peg exchange rate policy
- PPP exchange rate policy
- soft peg exchange rate policy
A: soft peg exchange rate policy

Q: When a government uses a ________ exchange rate policy, it usually allows the exchange rate to be set by the market.
- PPP
- hard peg
- soft peg
A: soft peg

Q: After years of destructive hyperinflation, the country of Zimbabwe decided to adopt the South African Rand as its currency. The Zimbabwean dollar is now a
- soft peg currency
- hard peg currency
- merged currency
A: merged currency

Q: The country of Karastan decides to merge its currency with the one of its neighbor Acikstan. This means that
- the country of Karastan will be keeping a fixed exchange rate with the currency of Acikstan.
- the country of Karastan will be implementing monetary policy for both countries
- the country of Karastan will be using Acikstan’s currency.
A: the country of Karastan will be using Acikstan’s currency.

Q: Russia currently uses floating exchange rates; this means that
- the exchange rates between the Russian ruble and other currencies is set by market forces within limits set by the Russian central bank.
- the exchange rates between the Russian ruble and other currencies is set in cooperation with other countries’ central banks.
- the exchange rates between the Russian ruble and other currencies is set by market forces only.
A: the exchange rates between the Russian ruble and other currencies is set by market forces only.

Q: If Sierra Leone decides to use a floating exchange rates; it means that
- Sierra Leone central bank sets limits on exchange rates between the Sierra Leone leone and other currencies is set by market forces.
- other countries’ central banks work with Sierra Leone to determine the exchange rates between the Sierra Leone leone and other currencies.
- The market forces determine the exchange rates between the Sierra Leone leone and other currencies.
A: The market forces determine the exchange rates between the Sierra Leone leone and other currencies.

Q: If a country wants to control the exchange rates of its currency relative to other currencies and conduct countercyclical monetary policy, then is should use
- a hard peg policy.
- a merged currency.
- a soft peg policy.
A: a soft peg policy.

Q: If a country wants to avoid large sudden fluctuations in exchange rates and their adverse effects it would choose
- floating exchange rates policy.
- arbitrage exchange rates policy.
- soft peg exchange rates policy.
A: soft peg exchange rates policy.

Q: ________ usually with an exchange rate tries avoiding intense short-terms fluctuations but allows it to move up and down by relatively small amounts in the short-run.
- A floating exchange rate
- A hard peg policy
- A soft peg policy
A: A soft peg policy

Q: A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in ________, but seeks to avoid extreme short-term fluctuations.
- the market exchange
- the long run
- the short run
A: the short run

Q: If a country has pegged its exchange rate, but its economy is heading into a recession, why would it be improbable that it could use an expansionary monetary policy to boost its sagging economy?
- Because it would focus on its soft peg and ignore the recession or inflation.
- Because it would break it's hard peg because the country's currency would appreciate.
- Because it would break it's hard peg by the depreciation of the country's exchange rate.
A: Because it would break it's hard peg by the depreciation of the country's exchange rate.

Q: Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?
- Inflation or recession must be ignored in order to focus on its soft peg.
- It would appreciate the country's currency and break its hard peg.
- It would depreciate the country's exchange rate and break its hard peg.
A: It would depreciate the country's exchange rate and break its hard peg.

Q: What happens if a government intervenes in exchange rate markets by using hard or soft pegs?
- A government salvages it’s economy that is continually falling short of attaining its economic goals.
- A government garners more influence and uses monetary policy to focus on its economic inflations.
- A government runs the risk of creating larger fluctuations in foreign exchange markets.
A: A government runs the risk of creating larger fluctuations in foreign exchange markets.

Q: Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs
- will save an economy that consistently fails at achieving the main economic goals.
- gain the power to use monetary policy to focus on domestic inflations.
- risk causing even greater fluctuations in foreign exchange markets.
A: risk causing even greater fluctuations in foreign exchange markets.

Q: If exchange rate markets make future predictions of government intervention because of a soft peg exchange rate, it may generate more ________.
- exchanges
- supply side effects
- volatility
A: volatility

Q: A soft peg exchange rate may create additional ________ as exchange rate markets try to anticipate when and how the government will intervene.
- trade-offs
- demand side effects
- volatility
A: volatility

Q: The neighbouring countries of Estontium and Lithunanium decide to merge their two currencies into one currency. By taking this step the countries forfeit the ability to
- use the foreign exchange markets to purchase currencies.
- use the foreign exchange markets to sell currency.
- have each of the individual countries decide their own monetary policy.
A: have each of the individual countries decide their own monetary policy.

Q: If a nation merges its currency with another nation to create a single currency, what must it give up?
- the ability to purchase currency in foreign exchange markets
- the ability to sell currency in foreign exchange markets
- the ability to determine its own nationally-oriented monetary policy
A: the ability to determine its own nationally-oriented monetary policy