1. The __________ approach to exchange rates emphasizes the role of portfolio repositioning by international financial investors.
a. Currency market
b. Asset market
c. Monetary
d. Balance of payments
2. The asset market approach to exchange rate determination seeks to predict:
a. Exchange rate premiums.
b. Long-run trends in exchange rates.
c. Medium-term trends in exchange rates.
d. Short-term pressures on exchange rates.
3. The exchange rate value of a foreign currency is __________ in the short run by a rise in the expected future spot exchange rate.
a. Raised
b. Lowered
c. Forced to zero
d. Unchanged
4. A decrease in the foreign interest rate relative to the domestic interest rate ___________ the exchange rate value of a foreign currency in the short run.
a. Raises
b. Lowers
c. Does not affect
d. Pegs
5. A shift to expecting depreciation in the euro will lead to:
a. An inflow of capital toEurope.
b. An increase in the demand for euro-denominated financial assets.
c. Uncovered interest rate parity.
d. A decrease in the demand for euro-denominated financial assets.
6. If the domestic interest rate decreases, with the foreign interest rate and the expected future spot rate remaining unchanged, the value of the domestic currency is expected to:
a. Increase.
b. Decrease.
c. Remain unchanged.
d. Converge to its PPP value.
7. If the expected future spot exchange rate value of the foreign currency decreases, with the interest rate differential unchanged, the current spot exchange rate value of the domestic currency:
a. Increases.
b. Decreases.
c. Remains unchanged.
d. Converges to zero.
8. An increase in interest rates in theUnited Stateswill lead to:
a. Depreciation of the dollar.
b. Outflows of capital from theUnited States.
c. Capital inflows into theUnited States.
d. A decrease in the demand for dollar-denominated financial assets.
9. Which of the following is NOT linked together by uncovered interest parity?
a. The domestic interest rate.
b. The foreign interest rate.
c. The current spot exchange rate.
d. The current forward exchange rate.
10. If investors expect a depreciation of the Thai baht, their actions will:
a. Drive down Thai interest rates.
b. Cause that expected depreciation to occur very quickly.
c. Cause the Thai baht to appreciate immediately.
d. Cause a large inflow of foreign capital intoThailand.