Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S dollar will depreciate against foreign currencies. investment funds would tend to ?

Related Mcqs:

1. For the United States suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent, For Switzerland the annual interest rate on government securities equal 10 percent while the annual inflation rate equals 7 percent the above variables would cause investment funds to flow from ?

   A. the United States to Switzerland causing the dollar to depreciate
   B. the United States to Switzerland causing the dollar to appreciate
   C. Switzerland to the United States causing the franc to depreciate
   D. Switzerland to the United States causing the franc to appreciate

2. For the United States suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent For Japan the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 5 percent the above variables would cause investment funds to flow from ?

   A. The United States to Japan causing the dollar to depreciate
   B. The United States to Japan causing the dollar to appreciate
   C. The Japan to United States, causing the dollar to depreciate
   D. The Japan to United States, causing the dollar to appreciate

3. Investor engage in _____ when they move funds into foreign currencies in order to take advantage to interest rates abroad that are higher than domestic interest rates ?

   A. currency arbitrage
   B. interest arbitrage
   C. short positions
   D. long positions

4. In the early eighties, the Federal Reserve pursed a tight monetary policy. All else being equal. the impact of that policy was to interest rates in the United States relative to those in Europe and cause the dollar to _______ against European currencies?

   A. decrease; depreciate
   B. decrease; appreciate
   C. increase; depreciate
   D. increase; appreciate

5. Which example of market expectations causes the dollar to depreciate against the yen – expectation that the U.S economy will have ?

   A. faster growth than Japan
   B. higher future interest rates than Japan
   C. more rapid money supply growth than Japan
   D. lower inflation rates than Japan

6. Suppose that U.S dollar depreciates 70 percent against the yen yet Japanese export prices to Americans did not decrease by the full extent of the dollar depreciation. This is best explained by ?

   A. partial currency pass through
   B. complete currency pass through
   C. partial J curve effect
   D. complete J curve effect

7. The motive for holding money that encourages investors to hold bonds when interest rates are low, with the hope of selling them when interest rates are high, is the ?

   A. Transactions motive
   B. precautionary motive
   C. profit motive
   D. speculation motive

8. Suppose that tomatoes from Mexico face a 20 percent tariff in the United States and a 25 percent tariff in Canada. If the United States and Canada maintain free trade between each other, the these two countries belong to a ?

   A. free-trade area
   B. customs union
   C. common market
   D. monetary union

9. Assume that the United States faces a percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing power parity theory over the long run the dollar would be expected to ?

   A. appreciate by 8 percent against the yen
   B. depreciate by 8 percent against the yen
   C. remain at its existing exchange rate
   None of the above

10. Assume that a Big Mac hamburger cost $3 in the United States 2 pesos in Mexico The implied purchasing power parity exchange rate between the peso and the dollar is ?

    A. 0.67 pesos = $1
    B. 0.8 pesos = $1
    C. 1.25 pesos = $1
    D. 1.67 pesos = $1