ECON 340 FINAL EXAM QUESTIONS AND VERIFIED
ANSWERS
Exchange rates are important because:
A) they affect the affordability of imports.
B) they make exports either more or less expensive for foreign buyers.
C) they affect the value of foreign assets and their returns.
D) all of the above. - Answers - D
Whenever income is less than expenditure for a period of time, a nation will experience:
A) a deficit in its current account.
B) a surplus in its current account.
C) a fall in GDP.
D) none of the above - Answers - A
A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome
if the absolute PPP holds, $1 is equal to:
A) 1 euro.
B) 2 euros.
C) 5/3=1.67 euros.
D) 3/5=0.6 euro. - Answers - C
Table: Exchange Rates across Currencies
Country Price per U.S. dollar (January 1, 2006)
Canada Cdn $1.2
Japan 120 yens
Mexico 12 pesos
India 45 rupees
If the exchange rate on January 1, 2007 is $1 = 144 yens, then:
A) the US dollar has appreciated 24/120 =20% against the yen.
B) the US dollar has depreciated 24/120 =20% against the yen.
C) the US dollar has depreciated 24/144 =16.7% against the yen.
D) the US dollar has appreciated 24/144=16.7% against the yen - Answers - A
Table: Exchange Rates across Currencies
Country Price per U.S. dollar (January 1, 2006)
Canada Cdn $1.2
Japan 120 yens
Mexico 12 pesos
India 45 rupees
, Which of the following statements is true?
A) 1 peso = 10 yens.
B) 1 rupee = 10 yens.
C) 1 peso = 3 rupees.
D) $1 Canadian = 35 rupees - Answers - A
Table: Exchange Rates across Currencies
Country Price per U.S. dollar (January 1, 2006)
Canada Cdn $1.2
Japan 120 yens
Mexico 12 pesos
India 45 rupees
1 Canadian dollar is equal to _____ Mexican pesos and _____ Indian rupees.
A) 12; 45*1.2=54
B) 10; 45/1.2 = 37.5
C) 12; 45/1.2 =37.5
D) 10; 45*1.2=54 - Answers - B
The average of the bilateral rate changes for a nation, weighted by the importance of
the trading partner, is known as:
A) the real exchange rate.
B) the nominal exchange rate.
C) the effective exchange rate.
D) the direct exchange rate - Answers - C
When the dollar depreciates against the euro, which of the following is unlikely to
happen?
A) German consumers will buy more U.S. products.
B) U.S. consumers will find German goods to be more expensive.
C) German firms that export to the U.S. market will have a higher profit.
D) Americans will not travel to the euro area as much for vacations - Answers - C
The difference between the spot contract and a forward contract is that:
A) the spot contract has a fixed price on the currency, and the forward contract has a
flexible price
B) the spot contract is a contract to be settled immediately, and the forward contract is a
contract to be settled at a future agreed-upon date.
C) the spot contract is a derivative, and the forward contract is not a derivative.
D) the spot contract has a fixed price but the contract can be settled at a later date, and
the forward contract is a contract to be settled immediately. - Answers - B
Foreign exchange swaps involve:
A) selling one currency on the spot market and at the same time purchasing it forward.
B) trading goods rather than money to improve efficiency.
ANSWERS
Exchange rates are important because:
A) they affect the affordability of imports.
B) they make exports either more or less expensive for foreign buyers.
C) they affect the value of foreign assets and their returns.
D) all of the above. - Answers - D
Whenever income is less than expenditure for a period of time, a nation will experience:
A) a deficit in its current account.
B) a surplus in its current account.
C) a fall in GDP.
D) none of the above - Answers - A
A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome
if the absolute PPP holds, $1 is equal to:
A) 1 euro.
B) 2 euros.
C) 5/3=1.67 euros.
D) 3/5=0.6 euro. - Answers - C
Table: Exchange Rates across Currencies
Country Price per U.S. dollar (January 1, 2006)
Canada Cdn $1.2
Japan 120 yens
Mexico 12 pesos
India 45 rupees
If the exchange rate on January 1, 2007 is $1 = 144 yens, then:
A) the US dollar has appreciated 24/120 =20% against the yen.
B) the US dollar has depreciated 24/120 =20% against the yen.
C) the US dollar has depreciated 24/144 =16.7% against the yen.
D) the US dollar has appreciated 24/144=16.7% against the yen - Answers - A
Table: Exchange Rates across Currencies
Country Price per U.S. dollar (January 1, 2006)
Canada Cdn $1.2
Japan 120 yens
Mexico 12 pesos
India 45 rupees
, Which of the following statements is true?
A) 1 peso = 10 yens.
B) 1 rupee = 10 yens.
C) 1 peso = 3 rupees.
D) $1 Canadian = 35 rupees - Answers - A
Table: Exchange Rates across Currencies
Country Price per U.S. dollar (January 1, 2006)
Canada Cdn $1.2
Japan 120 yens
Mexico 12 pesos
India 45 rupees
1 Canadian dollar is equal to _____ Mexican pesos and _____ Indian rupees.
A) 12; 45*1.2=54
B) 10; 45/1.2 = 37.5
C) 12; 45/1.2 =37.5
D) 10; 45*1.2=54 - Answers - B
The average of the bilateral rate changes for a nation, weighted by the importance of
the trading partner, is known as:
A) the real exchange rate.
B) the nominal exchange rate.
C) the effective exchange rate.
D) the direct exchange rate - Answers - C
When the dollar depreciates against the euro, which of the following is unlikely to
happen?
A) German consumers will buy more U.S. products.
B) U.S. consumers will find German goods to be more expensive.
C) German firms that export to the U.S. market will have a higher profit.
D) Americans will not travel to the euro area as much for vacations - Answers - C
The difference between the spot contract and a forward contract is that:
A) the spot contract has a fixed price on the currency, and the forward contract has a
flexible price
B) the spot contract is a contract to be settled immediately, and the forward contract is a
contract to be settled at a future agreed-upon date.
C) the spot contract is a derivative, and the forward contract is not a derivative.
D) the spot contract has a fixed price but the contract can be settled at a later date, and
the forward contract is a contract to be settled immediately. - Answers - B
Foreign exchange swaps involve:
A) selling one currency on the spot market and at the same time purchasing it forward.
B) trading goods rather than money to improve efficiency.
