FMT Tutorial 7

Qs18.2: “A country is always worse off when its currency is weak (falls in value).” Is this statement
true, false, or uncertain? Explain your answer.
Qs18.4: If the Japanese price level rises by 5% relative to the price level in the United States, what
does the theory of purchasing power parity predict will happen to the value of the Japanese yen in
terms of dollars?
Qs18.5: If the demand for a country’s exports falls at the same time that tariffs on imports are
raised, will the country’s currency tend to appreciate or depreciate in the long run?
Qs18.10: If the Indian government unexpectedly announces that it will be imposing higher tariffs
on foreign goods one year from now, what will happen to the value of the Indian rupee today?
Qs18.14: Through the summer and fall of 2008, as the global financial crisis began to take hold,
international financial institutions and sovereign wealth funds significantly increased their
purchases of U.S. Treasury securities as a safe haven investment. How should this have affected U.S.
dollar exchange rates?
Qs19.1: If the Federal Reserve buys dollars in the foreign exchange market but conducts an
offsetting open market operation to sterilize the intervention, what will be the impact on
international reserves, the money supply, and the exchange rate?
Qs19.2: If the Federal Reserve buys dollars in the foreign exchange market but does not sterilize
the intervention, what will be the impact on international reserves, the money supply, and the
exchange rate?