580 #
© 2014 Pearson Canada Inc.#19.3 Exchange Rates in the Short Run: A Supply and Demand Analysis
One way to understand the short-run behaviour of exchange rates is ____.
A) to use the theory of portfolio choice
B) to understand the exchange rate is the price of one asset in terms of another
C) to examine the long-run trends
D) A and B only.
Answer: D
Diff: 1 Type: MC Page Ref: 477
Skill: Recall
Objective List: 19.3 Identify the factors that lead to changes in the exchange rate in the short run
The ____ suggests that the most important factor affecting the demand for domestic and
foreign assets is the expected return on domestic assets relative to foreign assets.
A) theory of asset demand
B) law of one price
C) interest parity condition
D) theory of foreign capital mobility
Answer: A
Diff: 1 Type: MC Page Ref: 477
Skill: Recall
Objective List: 19.3 Identify the factors that lead to changes in the exchange rate in the short run
The theory of asset demand suggests that the most important factor affecting the demand for
domestic and foreign assets is the ____ on these assets relative to one another.
A) interest rate
B) risk
C) expected return
D) liquidity
Answer: C
Diff: 1 Type: MC Page Ref: 477
Skill: Recall
Objective List: 19.3 Identify the factors that lead to changes in the exchange rate in the short run
The theory of asset demand suggests that the most important factor affecting the demand for
domestic and foreign assets is ____.
A) the level of trade and capital flows
B) the expected return on these assets relative to one another
C) the liquidity of these assets relative to one another
D) the riskiness of these assets relative to one another
Answer: B
Diff: 1 Type: MC Page Ref: 477
Skill: Recall
Objective List: 19.3 Identify the factors that lead to changes in the exchange rate in the short run