intfin - unit 1
Quiz by Robert Couch
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17 questions
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- Q1All of the following statements about monetary policy are true EXCEPT:Monetary easing tends to increase exportsMonetary easing tends to devalue a country's currencyMonetary easing tends to increase nominal interest ratesMonetary easing tends to stimulate consumption and investment30s
- Q2Which of the following statements regarding monetary policy is FALSE?Montary tightening tends to decrease exportsMontary tightening tends to decrease inflationMontary tightening tends to devalue the country's currencyMontary tightening tends to increase interest rates30s
- Q3All else equal, if stocks in the U.S. are perceived to be riskier, then:demand for the USD will increase (shift right), and the USD will appreciatedemand for the USD will increase (shift right), and the USD will depreciatedemand for the USD will decrease (shift left), and the USD will appreciatedemand for the USD will decrease (shift left), and the USD will depreciate30s
- Q4If the U.S. imposes a tariff (tax) on imorted automobiles, then the direct effect in foreign exchange markets will be:an increase (rightward shift) in supply of USDs, putting downward pressure on the USDa decrease (leftward shift) in supply of USDs, putting upward pressure on the USDan increase in supply of USDs (rightward shift), putting upward pressure on the USDa decrease (leftward shift) in supply of USDs, putting downward pressure on the USD30s
- Q5If foreign investment opportunities increase relative to U.S. opportunities, then in the USD forex market:the supply of USDs will probably decrease (shift left), putting downward pressure on the USDthe supply of USDs will probably decrease (shift left), putting upward pressure on the USDthe supply of USDs will probably increase (shift right), putting downward pressure on the USDthe supply of USDs will probably increase (shift right), putting upward pressure on the USD30s
- Q6If the trade deficit increases, this is basically equivalent to saying:imports decreaseexports decreasenet capital inflows decreasenet exports decrease30s
- Q7If net exports (NX) increase, the the balance of payments implies:net capital inflows (KI) should decreasetotal investment (I) should decreasenet capital inflows (KI) should increasetotal investment (I) should increase30s
- Q8If national savings (S) decreases and total investment (I) stays the same, the basic balance of payments equation implies:net exports must increasetotal output must increasetotal output must decreasenet exports must decrease30s
- Q9If total output (Y) increases, but consumption (C), government spending (G), and net exports (NX) stay the same, then:net capital inflows must increaseinvestment must decreasenet capital inflows must decreaseinvestment must increase30s
- Q10Which policy would be most likely to reduce a country’s trade deficit?reducing export subsidiestightening monetary policyincreasing import quotasincreasing tariffs (taxes) on imports30s
- Q11The theory of purchasing power parity implies that, all else equal:a country's interest rate will be greater than its inflation ratereal returns on government bonds should be equal across countries with similar levels of government riskdecreasing trade barriers should increase economic growththe real cost of tradeable commodities should be the same across countries30s
- Q12The theory of interest rate parity implies that, all else equal:real returns on government bonds should be equal across countries with similar levels of government riskdecreasing trade barriers should increase economic growtha country's interest rate will be greater than its inflation ratethe real cost of tradeable commodities should be the same across countries30s
- Q13All of the following statements about parity relationships are true EXCEPT:the real cost of a Big Mac is generally higher in countries with higher standards of livingthe real return on government bonds is pretty similar across countries with similar levels of government riskthe real cost of gold is pretty much the same across rich and poor countriescountries with consistently high inflation generally have lower (nominal) interest rates30s
- Q14All of the following statements about interest rate parity are true EXCEPT:countries with greater excepted currency appreciation should have lower nominal interest ratesnominal interest rates should be equal across countries with similar riskdomestic bond returns should be equal to foreign bond returns plus the foreign currency’s expected appreciation (relative to the domestic currency)nominal interest rates should be higher in countries where the currency is expected to depreciate30s
- Q15The interest rate in Norway is 2.75%, whereas the interest rate in the U.S. is 4.5%. Because of interest rate parity we should expect the Norwegian krone (NOR) to:depreciate by about 7.25%, relative to the USDappreciate by about 7.25%, relative to the USDdepreciate by about 1.75%, relative to the USDappreciate by about 1.75%, relative to the USD30s