1.

The exchange rate is

(a) the price of one currency relative to gold. (b) the value of a currency relative to inflation.

(c) the change in the value of money over time.

(d) the price of one currency relative to another. (e) all of the above.

2) Exchange rates are determined in

(a) the money market. (b) the foreign exchange market.

(c) the stock market. (d) the capital market (e) both (b) and (c) of the above.

3) Although market trades are said to involve the buying and selling of currencies, most trades involve
the buying and selling of

(a) bank deposits denominated in different currencies (b) SDRs

(c) gold (d) ECUs

4) The immediate (two-day) exchange of one currency for another is a

(a) forward transaction (b) spot transaction

(c) money transaction (d) exchange transaction (e) daily transaction

5) An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

(a) spot transaction (b) future transaction

(c) forward transaction (d) monthly transaction (e) deposit transaction

6) Today 1 euro can be purchased for $1.10. This is the

(a) spot exchange rate (b) forward exchange rate

(c) fixed exchange rate (d) money exchange rate (e) financial exchange rate

7) In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro, the price
is the

(a) spot exchange rate (b) money exchange rate

(c) forward exchange rate (d) monthly exchange rate (e) fixed exchange rate.

8) When the value of the British pound changes from $1.25 to $1.50, then

(a) the pound has appreciated and the dollar has appreciated.

(b) the pound has depreciated and the dollar has appreciated.

(c) the pound has appreciated and the dollar has depreciated.

(d) the pound has depreciated and the dollar has depreciated.
9) When the value of the British pound changes from $1.50 to $1.25, then

(a) the pound has appreciated and the dollar has appreciated.

(b) the pound has depreciated and the dollar has appreciated.

(c) the pound has appreciated and the dollar has depreciated.

(d) the pound has depreciated and the dollar has depreciated.

10) When the value of the dollar changes from 0.5 pounds to 0.75 pounds, then

(a) the pound has appreciated and the dollar has appreciated.

(b) the pound has depreciated and the dollar has appreciated.

(c) the pound has appreciated and the dollar has depreciated.

(d) the pound has depreciated and the dollar has depreciated.

11) When the value of the dollar changes from 0.75 pounds to 0.5 pounds, then

(a) the pound has appreciated and the dollar has appreciated.

(b) the pound has depreciated and the dollar has appreciated.

(c) the pound has appreciated and the dollar has depreciated.

(d) the pound has depreciated and the dollar has depreciated.

12) When the exchange rate for the Mexican peso changes from 9 pesos to the dollar to 10 pesos to
the dollar, then

(a) the peso has appreciated and the dollar has appreciated.

(b) the peso has depreciated and the dollar has appreciated.

(c) the peso has appreciated and the dollar has depreciated.

(d) the peso has depreciated and the dollar has depreciated.

13) When the exchange rate for the Mexican peso changes from 10 pesos to the dollar to 9 pesos to
the dollar, then

(a) the peso has appreciated and the dollar has appreciated.

(b) the peso has depreciated and the dollar has appreciated.

(c) the peso has appreciated and the dollar has depreciated.

(d) the peso has depreciated and the dollar has depreciated.

14) In April 2000, one U.S. dollar traded on the foreign exchange market for about 7.2 French francs.
Therefore, one French franc would have purchased about

(a) 4.10 U.S. dollars (b) 1.40 U.S. dollars (c) 0.41 U.S. dollars (d) 0.14 U.S. dollars
15) In April 2000, one U.S. dollar traded on the foreign exchange market for about 44 Indian rupees.

Thus, one Indian rupee would have purchased about

(a) 0.01 U.S. dollars. (b) 0.02 U.S. dollars. (c) 0.20 U.S. dollars. (d) 2.00 U.S. dollars.

16) In April 2000, one U.S. dollar traded on the foreign exchange market for about 180 Spanish
pesetas. Therefore, one Spanish peseta would have purchased about

(a) 0.005 U.S. dollars. (b) 0.05 U.S. dollars. (c) 0.50 U.S. dollars. (d) 5.00 U.S.
dollars.

17) In April 2000, one U.S. dollar traded on the foreign exchange market for about 1.47 Canadian
dollars. Therefore, one Canadian dollar would have purchased about

(a) 2.30 U.S. dollars. (b) 1.15 U.S. dollars. (c) 0.67 U.S. dollars. (d) 0.56 U.S. dollars.

18) At the beginning of 1980, the French franc was valued at 25 cents and in early 1988 it was valued
at 17.5 cents. Thus, from 1980 to 1988, the dollar _____ and the franc _____.

(a) appreciated; appreciated (b) appreciated; depreciated

(c) depreciated; depreciated (d) depreciated; appreciated

19) If the dollar _____ from 1.0 European euros per dollar to 0.9 euros per dollar, the euro _____
from 1.0 dollar to 1.1 dollars per euro.

(a) appreciates; appreciates (b) appreciates; depreciates

(c) depreciates; depreciates (d) depreciates; appreciates

20) If the dollar _____ from 5 Mexican pesos per dollar to 10 pesos per dollar, the peso _____ from
20 cents to 10 cents per peso.

(a) appreciates; appreciates (b) appreciates; depreciates

(c) depreciates; depreciates (d) depreciates; appreciates

21) If the dollar appreciates from 5 French francs per dollar to 10 francs per dollar, the franc
depreciates

from _____ cents to _____ cents per franc.

(a) 20; 10 (b) 10; 20 (c) 10; 25 (d) 20; 25

22) If the British pound appreciates from $0.50 to $0.75 per U.S. dollar, the dollar depreciates from
_____ to _____ pounds per dollar.

(a) 2; 2.5 (b) 2; 1.33 (c) 2; 1.5 (d) 2; 1.25

23) If the Japanese yen appreciates from one cent to two cents per yen, the dollar depreciates from
_____ to _____ yen per dollar.

(a) 100; 50 (b) 10; 5 (c) 5; 10 (d) 50; 100

24) If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the real
depreciates from _____ to _____ dollars per real.

(a) $0.67; $0.50 (b) $0.33; $0.50

(c) $0.75; $0.50 (d) $0.50; $0.67 (e) $0.50; $0.75

25) If the relative price of the dollar changes from 1.5 Brazilian reals to 2.0 reals per dollar, the dollar
is said to _____ and the real is said to ______.

(a) appreciate; appreciate (b) appreciate; depreciate

(c) depreciate; depreciate (d) depreciate; appreciate

26) If the relative price of the dollar changes from 2.0 Brazilian reals to 1.5 reals per dollar, the dollar
is said to _____ and the real is said to ______.

(a) appreciate; appreciate (b) appreciate; depreciate

(c) depreciate; depreciate (d) depreciate; appreciate

27) If the exchange rate between the dollar and the euro changes from 1.0 to 1.1 euros per dollar, the

(a) euro appreciates and the dollar depreciates.

(b) dollar depreciates and the euro appreciates.

(c) euro depreciates and the dollar appreciates.

(d) dollar depreciates and the euro depreciates.

28) If the exchange rate between the dollar and the euro changes from 1.1 to 1.0 euros per dollar, the

(a) euro appreciates and the dollar appreciates. (b) dollar depreciates and the euro appreciates.

(c) euro depreciates and the dollar appreciates. (d) dollar depreciates and the euro depreciates.

29) If the exchange rate between the dollar and the euro changes from 90 to 95 cents per euro, the

(a) euro appreciates and the dollar appreciates. (b) dollar depreciates and the euro appreciates.

(c) euro depreciates and the dollar appreciates. (d) dollar depreciates and the euro depreciates.

30) If the exchange rate between the dollar and the euro changes from 99 to 97 cents per euro, the

(a) euro appreciates and the dollar appreciates. (b) dollar depreciates and the euro appreciates.

(c) dollar depreciates and the euro depreciates. (d) dollar appreciates and the euro depreciates.

31) If the dollar price of a euro increases from $0.90 to $1.00, the euro

(a) depreciates from 1.11 euros per dollar to 1 euro per dollar.

(b) appreciates from 1.11 euros per dollar to 1 euro per dollar.

(c) depreciates from 1 euro per dollar to 1.11 euros per dollar.
(d) appreciates from 1 euro per dollar to 1.11 euros per dollar.

(e) appreciates from 0.90 euros per dollar to 1 euro per dollar.

32) If the Swiss franc price of a dollar increases from 1.50 Swiss francs to 1.6 Swiss francs per dollar,
the dollar

(a) appreciates from $0.67 per Swiss franc to $0.625 per Swiss franc.

(b) depreciates from $0.67 per Swiss franc to $0.625 per Swiss franc.

(c) appreciates from $0.625 per Swiss franc to $0.67 per Swiss franc.

(d) depreciates from $0.625 per Swiss franc to $0.67 per Swiss franc.

(e) appreciates from $1.50 to $1.60 per Swiss franc.

33) When the exchange rate for the German mark changes from $0.50 to $0.30, then, holding
everything else constant,

(a) the mark has appreciated and German cars sold in the United States become more expensive.

(b) the mark has appreciated and German cars sold in the United States become less expensive.

(c) the mark has depreciated and American wheat sold in Germany becomes more expensive.

(d) the mark has depreciated and American wheat sold in Germany becomes less expensive.

34) If the dollar appreciates relative to the British pound,

(a) British dishes will become cheaper in the United States.

(b) American wheat will become cheaper in Great Britain.

(c) British dishes will become more expensive in the United States. (d) no change will occur.

35) If the dollar depreciates relative to the British pound

(a) British dishes will become cheaper in the United States.

(b) American wheat will become more expensive in Great Britain.

(c) British dishes will become more expensive in the United States. (d) both (b) and (c) will
occur.

36) If the dollar depreciates relative to the British pound

(a) British dishes will become more expensive in the United States.

(b) American computers will become less expensive in Great Britain

(c) Swiss chocolate will become cheaper in the United States.

(d) both (a) and (b) will occur. (e) both (b) and (c) will occur.

37) If the dollar depreciates relative to the Swiss franc

(a) Swiss chocolate will become cheaper in the United States.

(b) American computers will become more expensive in Switzerland.

(c) Swiss chocolate will become more expensive in the United States.

(d) Swiss computers will become cheaper in the United States.

38) If the dollar depreciates relative to the Swiss franc

(a) Swiss chocolate will become more expensive in the United States.

(b) American computers will become less expensive in Switzerland.

(c) Swiss chocolate will become cheaper in the United States. (d) both (a) and (b) of the above.

39) If the dollar appreciates relative to the Swiss franc

(a) Swiss chocolate will become more expensive in the United States.

(b) American computers will become less expensive in Switzerland.

(c) Swiss chocolate will become cheaper in the United States. (d) both (a) and (b) of the above.

40) All else constant, an appreciation of the Swiss franc causes

(a) Swiss watches sold in the United States to become more expensive.

(b) American computers sold in Switzerland to become more expensive.

(c) Swiss cheese sold in the United States to become cheaper.

(d) American automobiles sold in Switzerland to become cheaper.

(e) both (a) and (d) of the above are true.

41) When a country’s currency appreciates (rises in value relative to other currencies), the country’s
goods abroad become _____ expensive and foreign goods in that country become _____ expensive
(holding domestic prices constant in the two countries).

(a) more; less (b) more; more (c) less; less (d) less; more

42) When a country’s currency depreciates, its goods abroad become _____ expensive while foreign
goods in that country become _____ expensive.

(a) more; less (b) more; more (c) less; less (d) less; more

43) According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per
pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between
the Colombian peso and the Brazilian reals is:

(a) 40 pesos per real. (b) 100 pesos per real.

(c) 25 pesos per real. (d) 0.4 pesos per real. (e) none of the above.
ANSWERS:

1. Answer: D
2. Answer: B
3. Answer: A
4. Answer: B
5. Answer: C
6. Answer: A
7. Answer: C
8. Answer: C
9. Answer: B
10. Answer: B
11. Answer: C
12. Answer: B
13. Answer: C
14. Answer: D
15. Answer: B
16. Answer: A
17. Answer: C
18. Answer: B
19. Answer: D
20. Answer: B
21. Answer: A
22. Answer: B
23. Answer: A
24. Answer: A
25. Answer: B
26. Answer: D
27. Answer: C
28. Answer: B
29. Answer: B
30. Answer: D
31. Answer: B
32. Answer: A
33. Answer: C
34. Answer: A
35. Answer: C
36. Answer: D
37. Answer: C
38. Answer: D
39. Answer: C
40. Answer: E
41. Answer: A
42. Answer: D
43. Answer: C