Exchange Rates

Question 1

What is the exchange rate

Answer 1

How much one currency costs in terms of another

Question 2

Exchange rate R

Answer 2

of foreign currency per unit of domestic currency

Question 3

Exchange rate 1/R

Answer 3

of domestic currency per unit of foreign currency

Question 4

If R increases, the currency is said to have

Answer 4

Appreciated

Question 5

If R decreases, the currency is said to have

Answer 5

Depreciated

Question 6

As R depreciates against a foreign country, each unit of domestic currency trades for ____ units of foreign currency

Answer 6

Fewer

Question 7

As a domestic currency depreciates, it takes _____ of it to pay for international goods

Answer 7

More

Question 8

As a domestic currency depreciates, it takes _____ foreign currency it to export domestic goods

Answer 8

Fewer

Question 9

As R decreases, exports _____ and imports ______

Answer 9

Increase; decrease

Question 10

As R increases, exports _____ and imports ____

Answer 10

Decrease, increase

Question 11

If interest rates are higher domestically, (capital…)

Answer 11

Capital inflows

Residents sell real and financial assets to residents of the rest of the world

Question 12

If interest rates are lower domestically, (capital…)

Answer 12

Capital outflows

Residents buy real and financial assets from residents in the rest of the world

Question 13

Net exports are _____ related to income domestically

Answer 13

Negatively/inversely

Question 14

Net exports are ______ related to income in the rest of the world (foreign income levels)

Answer 14

Positively

Question 15

Net exports are ____ related to R

Answer 15

Negatively/inversely

Question 16

Income side includes (2)

Answer 16

Exports and capital inflows

Question 17

Payment side includes (2)

Answer 17

Imports and capital outflows)

Question 18

On the income side (exports and capital inflows), what happens to domestic currency

Answer 18

Demand increases
Foreign currency is sold for domestic
(Supply decreases?)

Question 19

On the payment side (imports and capital outflows), what happens to domestic currency?

Answer 19

Supply of domestic currency increases, because of selling it and buying foreign currency from market

Question 20

2 reasons a moneys demand curve shifts to the right

Answer 20

Higher foreign income (greater demand for exports, greater demand domestic currency at all Rs)
Higher domestic interest rate (capital inflows, greater demand for domestic currency)

Question 21

2 reasons a moneys supply curve shifts to the right

Answer 21

Higher domestic income (greater demand for imports, greater supply of all domestic currency for all Rs)
Lower domestic interest rate (creates capital outflows, greater supply for domestic currency)