Chapter 11  The Foreign Exchange Market
11.1 Single Choice
1) American firms became less competitive compared to foreign firms during the 1980s because 
A) the quality and productivity of American workers declined. 
B) foreign firms were younger than American firms and as a result had more modern facilities that made use of the latest technology. 
C) the U.S. dollar became worth more in terms of foreign currencies. 
D) the U.S. dollar became worth less in terms of foreign currencies. 
2) A spot transaction in the foreign exchange market involves the 
A) exchange of exports and imports at a specified future date. 
B) exchange of bank deposits at a specified future date. 
C) immediate (within two days) exchange of exports and imports. 
D) immediate (within two days) exchange of bank deposits. 
3) When the value of the British pound changes from $1.50 to $1.25, then the pound has _________ and the dollar has _________. 
A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
4) When the value of the dollar changes from £0.5 to £0.75, then the pound has _________ and the dollar has _________. 
A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
appreciates5) When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar, then the euro has _________ and the dollar has _________. 
A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
6) When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar, t
hen the euro has _________ and the dollar has _________. 
A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
7) If the dollar _________ from 1.2 euros per dollar to 0.8 euros per dollar, the euro _________ from 0.83 dollars to 1.25 dollars per euro. 
A) appreciates; appreciates 
B) appreciates; depreciates 
C) depreciates; depreciates 
D) depreciates; appreciates 
8) If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar, the euro depreciates from _________ dollars to _________ dollars per euro. 
A) 1.25; 0.83 
B) 0.83; 1.25 
C) 0.67; 1.50 
D) 1.50; 0.67 
9) 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. 
10) 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. 
11) When the exchange rate for the euro changes from $1.00 to $1.20 then, holding everything else constant, the euro has 
A) appreciated and German cars sold in the United States become more expensive. 
B) appreciated and German cars sold in the United States become less expensive. 
C) depreciated and American wheat sold in Germany becomes more expensive. 
D) depreciated and American wheat sold in Germany becomes less expensive. 
12) When the exchange rate for the euro changes from $1.20 to $1.00, then, holding everything else constant, the euro has 
A) appreciated and German cars sold in the United States become more expensive. 
B) appreciated and German cars sold in the United States become less expensive. 
C) depreciated and American wheat sold in Germany becomes more expensive. 
D) depreciated and American wheat sold in Germany becomes less expensive. 
13) The starting point for understanding how exchange rates are determined is a simple idea called _________, which states that if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it. 
A) Gresham's law 
B) the law of one price 
C) purchasing power parity 
D) arbitrage 
14) The theory of purchasing power parity is a theory of how exchange rate are determined in 
A) the long run. 
B) the short run.