Chapter 22

Question 1

The exchange rate is the

Answer 1

price of one country’s currency expressed in terms of another country’s currency.

Question 2

Which of the following generates demand for foreign currencies?

Answer 2

imports of foreign goods by firms located in the United States

Question 3

Which of the following generates demand for foreign currencies?

Answer 3

expenditures by Americans traveling abroad

Question 4

When foreigners buy U.S. dollars because they are a more stable currency than the currencies in their countries, they are generating a

Answer 4

demand for U.S. dollars and a supply of a foreign currency.

Question 5

When foreign countries buy wheat grown in the United States, they are generating a

Answer 5

demand for U.S. dollars and a supply of a foreign currency.

Question 6

A change in the exchange rate for a country’s currency alters the prices of

Answer 6

both exports and imports.

Question 7

An increase in the price of the U.S. dollar in terms of euros will cause, ceteris paribus,

Answer 7

European goods to be cheaper to residents of the United States.

Question 8

If one euro is equal to 0.60 U.S. dollars, what would be the euro price of a car that costs $10,000?

Answer 8

16,667 euros

Question 9

Suppose a U.S. firm purchases some English china. The china costs 1,000 British pounds. At the exchange rate of $1.45 = 1 pound, the dollar price of the china is

Answer 9

$1,450.

Question 10

Suppose a bottle of wine produced in France sells for 35 euros. If the exchange rate between euros and dollars is €1 = $1.30, how much will an American pay for the bottle of wine in America?

Answer 10

$45.50

Question 11

If the exchange rate between the U.S. dollar and Japanese yen changes from $1 = 100 yen to $1 = 90 yen, then

Answer 11

Japanese tourists visiting the United States will benefit.

Question 12

The depreciation of a country’s currency causes the price of imports to

Answer 12

rise and the prices of exports to fall.Correct

Question 13

If the U.S. dollar depreciates, in the long run the United States should experience a

Answer 13

smaller deficit in the U.S. trade balance.

Question 14

A depreciation of the South Korean won against the U.S. dollar will

Answer 14

raise the won price of U.S. goods.

Question 15

Generally speaking, a country whose currency depreciates will experience, as a result,

Answer 15

inflationary pressure because the prices of imports rise.

Question 16

Which of the following groups would be aided by a depreciation of the American dollar?

Answer 16

U.S. producers of goods for export

Question 17

If speculators believed the yen was going to depreciate against the U.S. dollar, they would most likely

Answer 17

purchase U.S. dollars.

Question 18

American citizens planning a vacation abroad that would require foreign currency would welcome

Answer 18

appreciation of the dollar.

Question 19

An increase in the U.S. trade deficit could be caused by

Answer 19

an appreciation of the dollar.

Question 20

(Figure 36.2) Choose the panel that represents the shift in the foreign exchange market for dollars given the following situation, ceteris paribus: A sudden, unexpected surge in inflation in the United States causes reduced purchases of U.S. goods by foreigners.

Answer 20

C