Fin 582 Chapter 6 Exam Questions with Correct Answers

Fin 582 Chapter 6 Exam Questions with Correct Answers A weak dollar is normally expected to cause a. high unemployment and high inflation in the U.S. b. low unemployment and high inflation in the U.S. c. low unemployment and low inflation in the U.S. d. high unemployment and low inflation in the U.S. - Answer-b. low unemployment and high inflation in the U.S. Under a freely floating exchange rate system a. exchange rates remain very stable because of offsetting economic conditions. b. central bank intervention in the foreign exchange market is often necessary. c. central bank intervention in the foreign exchange market is not necessary. d. a foreign exchange market does not exist. - Answer-c. central bank intervention in the foreign exchange market is not necessary. Which of the following is an appropriate form of indirect intervention? a. To weaken the dollar in the long run, the Fed attempts to reduce U.S. inflation. b. To weaken the dollar, the Fed reduces the money supply to increase interest rates. c. To strengthen the dollar in the long run, the Fed attempts to reduce U.S. inflation. d. To strengthen the dollar, the Fed increases the money supply to lower interest rates. - Answer-c. To strengthen the dollar in the long run, the Fed attempts to reduce U.S. inflation. The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a a. fixed system. b. pegged system. c. managed float system. d. crawling peg system. - Answer-c. managed float system. Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency appreciates against B, then A's exports to C should ____, and A's imports from C should ____. a. decrease; decrease b. decrease; increase c. increase; decrease d. increase; increase - Answer-b. decrease; increase