1. Most economic theories of exchange rate movements agree that three factors have an important impact...

1. Most economic theories of exchange rate movements agree that three factors have an important impact on future exchange rate movements in a country’s currency. Which of the following is not of the three main factors?

A. The country’s price inflation

B. The country’s interest rate

C. Market psychology

D. The country’s legal system

2. Which of the following statement is true?

A. In general, FDI occurs whenever a local citizen, organization, or affiliated group takes an interest of 50 percent of more in a foreign business entity

B. Foreign portfolio investment is a form of FDI because foreign portfolio investment involves obtaining a management control

C. When a firm exports its products to a foreign country, foreign direct investment ( FDI) occurs

D. When a firm undertakes FDI, it becomes a multinational enterprise

3. Prior research on the determinants of exchange rate suggest that relative inflation rates and nominal interest rate differentials are all moderately good predictors of short-run changes in exchange rates, but predictors of long-run changes in exchange rates

True

False

4. If the value of the U.S. dollar rises sharply against the Chinese yuan, this exchange rate movements is likely to boost China’s exports to the U.S., holding other things constant

True

False

Solutions

Expert Solution

D. The country’s legal system

Explanation: The country's legal system has no role to play in determining the exchange rate.

2. Which of the following statement is true?

C. When a firm exports its products to a foreign country, foreign direct investment ( FDI) occurs

Explanation:Exporting a prodcut is an example of trade, not investment.

False

Explanation: Relative inflation rates and nominal interest are predictors in the short run.

4. If the value of the U.S. dollar rises sharply against the Chinese yuan, this exchange rate movements is likely to boost China’s exports to the U.S., holding other things constant

True

Explanation: When the US dollar appreciates, Chinese imports will become relatively cheaper. So Chinese imports will increase.

Rahul Sunny answered 2 weeks ago

Next > < Previous

Related Solutions

Q27 While macro factors impact exchange rate movements in the long term, investor psychology tends to...

Q27 While macro factors impact exchange rate movements in the long term, investor psychology tends to be a more important factor in the short term. T or F

(a)What is exchange rate risk? Distinguish between Transaction Exposure and Economic exposure to exchange rate movements....

(a)What is exchange rate risk? Distinguish between Transaction Exposure and Economic exposure to exchange rate movements. (b)Consider the following information: 90-day U.S interest rate………………………………………………………….4% 90-day Malaysian interest rate……………………………………………….3% 90-day forward rate for the Malaysian Ringgit ……………………..$0.400 Spot Rate of Malaysian Ringgit ………………………………………………$0.404 Assume a U.S based MNC will need 300,000 Ringgit in 90 days and wishes to hedge this payable position. Would it be better off using a FORWARD hedge or MONEY MARKET hedge?

What are the three most important exchange rate influences for forecasting the future direction of exchange...

What are the three most important exchange rate influences for forecasting the future direction of exchange rates? (briefly explain each) Why would these forecasts be vital to a multinational’s CFO?

4. Impact of Exchange Rate Movements. Plak Co. of Chicago has several European subsidiaries that remit...

4. Impact of Exchange Rate Movements. Plak Co. of Chicago has several European subsidiaries that remit earnings to it each year. Explain how appreciation of the euro (the currency used in many European countries) would affect Plak's valuation 5. Exposure to Exhange Rates. McCanna Corp., a U.S. firm, has a French subsidiary that produces wine and exports to various European countries. All of the countries where it sells its wine use the euro as their currency, which is the same...

. Discuss the impact of higher economic growth on the exchange rate of the Canadian dollar...

. Discuss the impact of higher economic growth on the exchange rate of the Canadian dollar according to the monetary approach to the exchange rate model. Why does the model makes this prediction? The Keynesian approach to the exchange rate model. Why does the model makes this prediction?

Why is economic growth important to us and what are the most important/critical factors that contribute...

Why is economic growth important to us and what are the most important/critical factors that contribute to growth? What is holding the US economy back from achieving the desired 4% growth?

Explain the impact of the change in the following factors on today's foreign exchange rate determination....

Explain the impact of the change in the following factors on today's foreign exchange rate determination. You can answer it with graph. 1. Increase in US, China, EU and etc's demand for Korean exports 2. Firstly, the increase of Korea interest rates level at a given US interest rate level and then, the increase of US interest rate level, assuming no change in Korean interest rate level. 3. Increase in future exchange rate

There are three theories that explain exchange rate behaviour, two of these deals with how inflation...

There are three theories that explain exchange rate behaviour, two of these deals with how inflation rates affect the exchange rate. They are purchasing power parity (PPP) and International Fisher Effect (IFE). (a) In reality, PPP does not hold. Even PPP holds, this does not consistently occur. Give two major reasons why PPP does not hold consistently. Explain in detail. (b) Assume the spot exchange rate of Singapore dollar to US dollar is US$0.7420/S$. The one-year interest rate is 0.3%...

How does the Dornbusch overshooting model indicate exchange rate volatility and large exchange rate movements?

How does the Dornbusch overshooting model indicate exchange rate volatility and large exchange rate movements? What problems may this create based on the role of expectations on current exchange rate movements due to monetary policy, and the role of exchange rate movements in asset prices?

1) Describe the three most important classical theories within the field of International Political Economy (IPE):...

1) Describe the three most important classical theories within the field of International Political Economy (IPE): mercantilism, economic liberalism, and neo-Marxism. 2) Describe the relationship between politics and economics, and between states and markets. 3) What is the relationship between the haves and the have-nots on a global scale?

Subjects