1.When we look at two currencies, a floating exchange rate is best described as
ID: 1103295 • Letter: 1
Question
1.When we look at two currencies, a floating exchange rate is best described as a. The number of dollars in circulation in both domestic and foreign markets b. The value of the currency is determined by supply and demand in foreign exchange markets c. The ratio between imports and exports d. One currency is fixed to another 2. If there is an increase in the supply of dollars in the foreign exchange market, we would expect (holding everything else constant) a. The dollar to appreciate b. No change in the value of the dollar c. The dollar to depreciate d. None of these answers 3. If European consumers purchase more goods and services produced in the US (US exports), we would expect (holding everything else constant) a. An increase in the demand for dollars in foreign exchange markets and the dollar to appreciate b. A decrease in the demand for dollars in foreign exchange markets and the dollar to depreciate c. A decrease in the supply of dollars in foreign exchange markets and the dollar to appreciate d. An increase in the supply of dollars in foreign exchange markets and the dollar to depreciate 4. If Toyota builds a new assembly plant in Western Kentucky, this is considered a. An increase in imports and a capital account transaction b. An increase in imports and a current account transaction c. Direct foreign investment and a current account transaction d. Direct foreign investment and a capital account transaction 5. Assume an increase in England's economic growth. Holding everything else constant, we can expect: a. An increase in England's current account surplus as the demand for exports increases b. A decrease in England's current account surplus as the demand for exports decreases c. A decrease in England's current account surplus as the demand for imports increases d. An increase in England's current account surplus as the demand for exports decreases 6. Following the previous question and answer where there was an increase in England's economic growth (England's currency is the pound) a. The pound will appreciate as the supply of pounds decreases in the foreign exchange market b. The pound will depreciate as the supply of pounds increases in the foreign exchange market c. The pound will depreciate as the demand for pounds decreases in the foreign exchange market d. The pound will appreciate as the demand for pounds decreases in the foreign exchange market 7. Following the previous question and answer where there was a change in the value of the pound, we can expect for the current account a. b. c. d. A decrease in net exports as the price of imports decreases and price of exports increases An increase in net exports as the price of imports decreases and price of exports increases A decrease in net exports as the price of imports increases and price of exports increases An increase in net exports as the price of imports increases and price of exports decreasesExplanation / Answer
1.The correct option is (b). Determined by the supply and demand for the two currencies.
2. The correct option is ©. The dollar will depreciate.
3. The correct option is (a). There will be an increase in the demand for dollars in the Foreign exchange market and the price of dollar which is exchange rate rises.
4 Toyoto is a Japanese enterprise which means that it building a new plan in US is a FDI and capital account. Thus the correct option is (d)
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