ECON 340 - CHAPTER 15 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Assume that the US interest rate is 5%, the European interest rate is 2%, and the future expected
exchange rate in one year is $1.224.
If the spot rate is $1.16, then the expected dollar return on the euro is: - Answers 7.52%
Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected
exchange rate in one year is $1.224.
If the spot rate is $1.24, then the expected dollar return on euro deposits is: - Answers 0.71%
Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected
exchange rate in one year is $1.224.
At approximately what exchange rate will the returns between the United States and Europe be
equalized? - Answers $1.188
Using the UIP equation, equilibrium in the short run occurs when: - Answers the spot rate is such that
foreign and domestic investment returns are equalized.
If the US interest rate is 9% and the Eurozone interest rate is 5%, then in the short run we would
expect: - Answers the dollar to depreciate by 4%.
Using the graph, if the dollar rate of interest increases from 5% to 7%, what result will occur in the
short run? - Answers The spot rate for dollars will appreciate to $1.10.
In the money market, equilibrium is achieved: - Answers In the money market, equilibrium is
achieved:
An increase in the money supply in the short run changes ____, whereas in the long run, ____ change.
- Answers interest rates; price levels
From full long-run equilibrium, expectations of future exchange rates can only change when there is
a: - Answers permanent change in the quantity of money.
When the value of the home country's currency appreciates in the short run and then depreciates to
its original level in the long run, it implies that the foreign country's money supply has: - Answers
temporarily risen
When the value of the home country's currency depreciates in the short run and then appreciates to
its original level in the long run, it implies that the home country's money supply has: - Answers
temporarily risen
When the home country's currency depreciates by a lot in the short run and then appreciates slightly
in the long run, it implies that the foreign country's money supply has: - Answers permanently fallen.
If Bulgaria, for instance, wished to keep its exchange rate with the dollar fixed, what monetary policy
options are available to lower unemployment in the short run? - Answers Bulgaria cannot use any
monetary policy that would cause its short-run exchange rate to depreciate against the dollar.
In the short run, the chain of causality between monetary policy and the exchange rate under fixed
rates differs from a floating rate. How? - Answers n a fixed rate regime, exchange rates are
determined first, then the nominal interest rate (according to uncovered interest parity), and then the
money supply.
With fixed exchange rates and capital mobility: - Answers interest rates in the home country and in
foreign countries are equalized.
Why would lowering its own interest rates affect a nation's exchange rate? - Answers International
interest arbitrage (the ability to borrow in low-rate markets and deposit in higher-rate markets) would
cause investors to sell domestic currency assets and purchase foreign assets based in other
currencies.
Which of the following explains why a monetary policy in a nation with an exchange rate peg, such as
Denmark, would NOT be possible? - Answers The nation must keep its price level and nominal
interest rate equal to the price level and nominal interest rate in the nation to which it pegs.
The trilemma refers to all the following, EXCEPT:
A. price controls.
B. international capital mobility.
C. a fixed exchange rate.
Assume that the US interest rate is 5%, the European interest rate is 2%, and the future expected
exchange rate in one year is $1.224.
If the spot rate is $1.16, then the expected dollar return on the euro is: - Answers 7.52%
Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected
exchange rate in one year is $1.224.
If the spot rate is $1.24, then the expected dollar return on euro deposits is: - Answers 0.71%
Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected
exchange rate in one year is $1.224.
At approximately what exchange rate will the returns between the United States and Europe be
equalized? - Answers $1.188
Using the UIP equation, equilibrium in the short run occurs when: - Answers the spot rate is such that
foreign and domestic investment returns are equalized.
If the US interest rate is 9% and the Eurozone interest rate is 5%, then in the short run we would
expect: - Answers the dollar to depreciate by 4%.
Using the graph, if the dollar rate of interest increases from 5% to 7%, what result will occur in the
short run? - Answers The spot rate for dollars will appreciate to $1.10.
In the money market, equilibrium is achieved: - Answers In the money market, equilibrium is
achieved:
An increase in the money supply in the short run changes ____, whereas in the long run, ____ change.
- Answers interest rates; price levels
From full long-run equilibrium, expectations of future exchange rates can only change when there is
a: - Answers permanent change in the quantity of money.
When the value of the home country's currency appreciates in the short run and then depreciates to
its original level in the long run, it implies that the foreign country's money supply has: - Answers
temporarily risen
When the value of the home country's currency depreciates in the short run and then appreciates to
its original level in the long run, it implies that the home country's money supply has: - Answers
temporarily risen
When the home country's currency depreciates by a lot in the short run and then appreciates slightly
in the long run, it implies that the foreign country's money supply has: - Answers permanently fallen.
If Bulgaria, for instance, wished to keep its exchange rate with the dollar fixed, what monetary policy
options are available to lower unemployment in the short run? - Answers Bulgaria cannot use any
monetary policy that would cause its short-run exchange rate to depreciate against the dollar.
In the short run, the chain of causality between monetary policy and the exchange rate under fixed
rates differs from a floating rate. How? - Answers n a fixed rate regime, exchange rates are
determined first, then the nominal interest rate (according to uncovered interest parity), and then the
money supply.
With fixed exchange rates and capital mobility: - Answers interest rates in the home country and in
foreign countries are equalized.
Why would lowering its own interest rates affect a nation's exchange rate? - Answers International
interest arbitrage (the ability to borrow in low-rate markets and deposit in higher-rate markets) would
cause investors to sell domestic currency assets and purchase foreign assets based in other
currencies.
Which of the following explains why a monetary policy in a nation with an exchange rate peg, such as
Denmark, would NOT be possible? - Answers The nation must keep its price level and nominal
interest rate equal to the price level and nominal interest rate in the nation to which it pegs.
The trilemma refers to all the following, EXCEPT:
A. price controls.
B. international capital mobility.
C. a fixed exchange rate.
