International Finance Theory and Policy
by Steven M. Suranovic

Finance 110

Finance 110

Finance Questions 110 J-1

DIRECTIONS: As in the popular TV game show, you are given an answer to a question and you must respond with the question. For example, if the answer is, "the value of goods and services sold to foreigners", then the correct question is, "What are exports?"
  1. hyperactivity in this aggregate variable is often a reason countries turn to fixed exchange rates.
  2. this term describes the unpredictable movement of an exchange rate.
  3. the effect on an importer's profits (higher, lower or no change) if they wait to exchange currency and the foreign currency rises in value vis-a-vis the domestic currency in the meantime.
  4. the effect on an importer's profits (higher, lower or no change) if they wait to exchange currency and the domestic currency falls in value vis-a-vis the foreign currency in the meantime.
  5. the effect on an investor's foreign rate of return (higher, lower or no change) if the foreign currency rises in value more than expected vis-à-vis the domestic currency after purchasing a foreign asset.
  6. this central bank action, if repeated frequently, can cause volatility in fixed exchange rate systems.
  7. term describing the relationship between the US FED and the US government that no doubt has contributed to the low US inflation rate in the past two decades.
  8. in part to achieve this, the UK has refused to adopt the Euro as its currency.
  9. the failure of this exchange rate system is a good example of how fixed exchange rates may not lead to lower inflation.
  10. if these two types of macro policy are implemented prudently over time, both fixed and floating exchange rate systems can function smoothly.

 

International Finance Theory and Policy - Chapter 110: Last Updated on 1/6/08