CH 14

Question 1

E? ?/?

Answer 1

Exchange rate
Domestic currency/forigen currency

Question 2

Assests is what?

Answer 2

Asstes are a thing that brings wealth and purchasing power to the holder

Question 3

The price of an assets is …. what?

Answer 3

a reflection on what value the asset are meant to bring

Question 4

Exchange rates allows us to…?

Answer 4

compare prices of goods and serivces across countries

Question 5

If an exchange rate depreciate then…

Answer 5

the its cheaper for forigners to buy domestic countrys goods.

Question 6

If an exchange rate appreciates then…

Answer 6

Its more expensive to buy goods from the domestic country

Question 7

The value of a currency is … ?

Answer 7

The price for that currency and the expected return of the currency

Question 8

E appreciate, then the currency…?

Answer 8

Domestic currency depriciate and forigen currency appreciate in comparsion

Question 9

E depreciate, then the currency…?

Answer 9

Domestic currency appreciate and forigen currency depriciate in comparsion

Question 10

relative price is when

Answer 10

x amount of eg. jeans in terms of shirts

Question 11

dollar against euro, is written as:

Answer 11

euro/dollar

Question 12

The forigen exchange market shows

Answer 12

the exchange rate, thourgh the deamand and supply of currencies which determine the exchange rate.

Question 13

When ascertaining a asset, like currency, savers will look at the

Answer 13

highest rates of return, which is determined by the interest rate, expected change in currency exchange rate
risk
liquidity

Question 14

Equalibrium is meet when

Answer 14

deposits of all currencies offer the same expected rate of return and when interest parity conditions holds (same thing)

Question 15

Expected return on forigen currency is based on

Answer 15

todays exchange rate
intreste rate
future exchange rate

Question 16

When currency appreciate or depricitate

Answer 16

The expected domestic currency return on forigen deposits appreciate or depriciate intandem with the curency

Question 17

The Forexmarket consists of

Answer 17

the exchange rate, rates of return, expected return on forigen deposists, return on domestic deposits

Question 18

Increase of Intreste rate of domestic currency leads to …

Answer 18

that the schedule return on domestic deposists shifts to the right

Question 19

Decrease of Intreste rate of domestic currency leads to …

Answer 19

that the schedule return on domestic deposists shifts to the left

Question 20

Increase of Intreste rate of forigen currency leads to …

Answer 20

that the schedule return on forigen deposists shifts to the right

Question 21

Decrease of Intreste rate of domestic currency leads to …

Answer 21

that the schedule return on forigen deposists shifts to the left

Question 22

CIP : ?

Answer 22

R = R* + (F-E/E)

Question 23

FP ? FP = ?

Answer 23

Forward premium
F-E/E or (F/E) - 1

Question 24

FR ? FR = ?

Answer 24

Forigen rate
R* + (E(e)/E) - 1

Question 25

roh?

Answer 25

risk premium on domestic assets

Question 26

roh=?

Answer 26

FP-E

Question 27

R-R*

Answer 27

Rate of depreciation

Question 28

Expected rate of return on forigen donds in domesttic currency

Answer 28

FR

Question 29

R ?

Answer 29

domestic intreste rate
rate of return when investing in domestic bonds in domestic currency

Question 30

R* ?

Answer 30

rate of return when investing in forigen bonds in forigen currency

Question 31

Three theories for exchange rate determination

Answer 31

The balance of payments approach aka. demand and supply for forigen assets
Purchasing power parity theory (PPP)
Asset-market approach (looks at intreste rate)

Question 32

Short run exchange rate theories

Answer 32

The balance of payments approach and Asset-market approach

Question 33

expected rate of depreciation

Answer 33

E(e) - E / E
(If result is -% then its an appreciation)