Lesson 3

Question 1

What is a Currency Union?

Answer 1

When a group of countries agree to adopt a common currency

Question 2

Dollarization

Answer 2

Some countries choose to use a foreign currency as their domestic.

Ex. Ecuador uses US dollars

Question 3

What is the direct method of exchange rates?

Answer 3

Canadian dollar price of one foreign currency

E(D/F)

Question 4

What causes Exchange Rates to Fluctuate?

Answer 4

Changes in demand and supply for the foreign currency market

Question 5

Currency Appreciation

Answer 5

E goes down, this is a domestic appreciation

Question 6

Currency Depreciation

Answer 6

E goes up, this is a domestic depreciation

Question 7

Canadian Wine is $20 and European is 12 EUR. The exchange rate is 1.45.. How much is the European bottle in CAD$?

Answer 7

12 * 1.45 = 17.40

17.40/20 = 0.87 which is the rate.

Question 8

How big is the Fx Market?

Answer 8

5.1 trillion in April 2016

1/3 of the yearly volume of world trade in goods and services

Question 9

Define a Spot Rate

Answer 9

Spot rates are the rate at which a currency is exchanged for on the ‘spot’ or immediately.

Question 10

Define a forward Rate

Answer 10

Exchange rates for currency that will occur at a future date

Question 11

What is the theory of asset approach?

Answer 11

Influences to the Type of Assets We Hold:
Risk
Liquidity