Question

In: Economics

1. Other things equal, the domestic currency _____ when the domestic money supply increases relative to...

1. Other things equal, the domestic currency _____ when the domestic money supply increases relative to the foreign money supply.

a. depreciates in the long-run

b. appreciates in the long-run

c. remains unchanged in the long-run.

d. appreciates in the short-run but returns to its initial value in the long-run.

2. Which of the following refers to foreign exchange?

a. The act of trading different nations’ moneys

b. The holdings of foreign assets

c. The act of exchanging goods and services internationally.

d. The adoption of foreign trade policies

3. If the price of British pounds in terms of the U.S. dollars is $1.80 per pound, then the price of U.S. dollars in terms of British pounds is:

a. £1.80 per dollar.

b. £0.555 per dollar.

c. £0.90 per dollar.

d. £3.60 per dollar.

4. The exchange rate set for an immediate trade is often referred to as a:

a. managed exchange rate.

b. pegged exchange rate.

c. forward exchange rate.

d. spot exchange rate.

5. When the exchange rate is set now for a currency trade that will take place sometime more than a few days in the future is often referred to as a:

a. spot exchange rate.

b. forward exchange rate.

c. pegged exchange rate.

d. managed exchange rate.

6. The U.S. dollar is called a _____ because it is often used as an intermediary to accomplish trading between two other currencies.

a. vehicle currency

b. main currency

c. common currency

d. primary currency

Expert Solution

Answer 1.

Other things equal, the domestic currency depreciates in the long-run when the domestic money supply increases relative to the foreign money supply.

Explanation: When money supply increases relative to the foreign money supply, interest rates trend lower. This makes the foreign a relatively attractive investment destination and local currency is sold for foreign currency. This depreciates the local currency as supply increases.

Answer 2.

Which of the following refers to foreign exchange - The act of trading different nations’ moneys

Explanation: Foreign exchange is the conversion of one currency to the other currency or the over-the-counter trading of currencies.

Answer 3.

If the price of British pounds in terms of the U.S. dollars is $1.80 per pound, then the price of U.S. dollars in terms of British pounds is - £0.555 per dollar

Explanation: US dollar in terms of British Pound = 1 / 1.8 = £0.555 per dollar

Answer 4.

The exchange rate set for an immediate trade is often referred to as a -Spot exchange rate

Explanation: Spot exchange rate is the currency exchange price for immediate trade. For most foreign exchange transactions,settlement date is fixed two days post the transaction date. In some cases, settlement is even in the next business day.

Answer 5.

When the exchange rate is set now for a currency trade that will take place sometime more than a few days in the future is often referred to as a - forward exchange rate

Explanation: Unlike spot exchange rate, the forward exchange rate is the rate at which one currency is agreed to be exchange with the other via forward contract (a future date).

Answer 6.

The U.S. dollar is called a Vehicle Currency because it is often used as an intermediary to accomplish trading between two other currencies.

Explanation: The dollar acts as a vehicle currency when non-dollar economies engage in trade using the dollar. Just as an example, the oil price are priced in dollar and transactions potentially happen in dollars between 2 countries not having dollar as their currency.

Rahul Sunny answered 2 years ago

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