Foreign Exchange

If a nation’s interest rates are relatively low compared to those of other countries then the exchange value of its currency will tend to ?

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If a nation’s interest rates are relatively low compared to those of other countries then the exchange value of its currency will tend to ?

A. depreciate under a system of fixed exchange rates
B. depreciate under a system of floating exchange rates
C. appreciate under a system of floating exchange rates
D. appreciate under a system of floating fixed rates

Expansionary monetary policy ?

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Expansionary monetary policy ?

A. tends to lead to an appreciation of a nation’s currency
B. tends to lead to a depreciation of a nation’s currency
C. usually has no effect on a currency’s exchange value
D. tends to lead to a depreciation of the currencies of other nations

If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ?

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If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ?

A. as the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall
B. as the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise
C. as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.
D. as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise

In 1971, most countries ?

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In 1971, most countries ?

A. adopted a new system of fixed exchange rates
B. gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand
C. adopted single internationally accepted currency whose use is limited to international transactions
D. returned to the gold standard

Speculators in foreign exchange markets do all of the following except ?

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Speculators in foreign exchange markets do all of the following except ?

A. attempt to profit by trading on expectations about future currency prices
B. bear risk as they attempt to ____ beat the market||
C. attempt to buy currency at a low price and later resell that currency at a higher price
D. Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit

The real effective exchange rate for the U.S dollar ?

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The real effective exchange rate for the U.S dollar ?

A. reflects only the influences of merchandise or real trade on the dollar’s exchange value
B. reflects only transactions in the currency futures market
C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?

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 ?

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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