the economics of money, banking, and financial markets

594 #

© 2014 Pearson Canada Inc.#

48. 
    

    During the beginning on the subprime crisis in the United States when the effects of the
    crisis were mostly confined within the United States, the U. S. dollar ____ because demand
    for U.S. assets ____.
    A) appreciated; increased
    B) depreciated; increased
    C) appreciated; decreased
    D) depreciated; decreased
    Answer: D
    Diff: 1 Type: MC Page Ref: 485 - 486
    Skill: Recall
    Objective List: 19.4 Understand the factors that change the exchange rate

    
    


49. 
    

    When the effects of the subprime crisis started to spread more quickly throughout the rest of
    the world, the U.S. dollar ____ because demand for U.S. assets ____.
    A) appreciated; increased
    B) depreciated; increased
    C) appreciated; decreased
    D) depreciated; decreased
    Answer: A
    Diff: 1 Type: MC Page Ref: 485 - 486
    Skill: Recall
    Objective List: 19.4 Understand the factors that change the exchange rate

    
    


50. 
    

    Explain and show graphically the effect of an increase in the expected future exchange rate
    on the equilibrium exchange rate, everything else held constant.
    Answer: See figure below.

    
    

When the expected future exchange rate increases, the relative expected return on the domestic
assets increases. This will cause the demand for domestic assets to increase and the current value
of the exchange rate will appreciate.
Diff: 2 Type: SA Page Ref: 480 - 481
Skill: Recall
Objective List: 19.4 Understand the factors that change the exchange rate