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a) An investor considering investing in bonds in a foreign country, optimally should:

a. look for the country that had the most rapidly depreciating currency and invest there.

b. look for the country offering the highest interest rate and invest there.

c. be concerned with only changes in that country's currency value in the future.

d. look for the country that had the most rapidly appreciating currency and invest there.

e. be concerned with interest rates and with changes in that country's currency value in the future.

 

b) Given the textbook's definitions of variables reflecting components of the national income accounts, private saving equals:

a. Y - CA

b. Y - T - C + CA

c. Y - T - G

d. T - G

e. Y + CA

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

a) Given the textbook's definitions of variables reflecting components of the national income accounts, government savings equals:

a. Y + CA

b. T - CA

c. Y - T - C + CA

d. T - G

e. Y - T - G

b) The carry trade refers to when one:

a. borrows money in a high-interest rate currency and invests the borrowed money in a low-interest rate currency.

b. borrows money at high-interest rates to buy carriage (i.e. transport) services.

c. borrows money at low-interest rates to buy carriage (i.e. transport) services.

d. buys or sells carriage (i.e. transport) services.

e. borrows money in a low-interest rate currency and invests the borrowed money in a high-interest rate currency.

c) The notation 1.75$/£ means

a. 1.75 dollars per pound, and if the number increases, the dollar appreciates against the pound.

b. 1.75 pounds per dollar, and if the number increases, the dollar depreciates against the pound.

c. 1.75 dollars per pound, and if the number increases, the dollar depreciates against the pound.

d. 1.75 pounds per dollar, and if the number increases, the dollar appreciates against the pound.

e. 1.75 pounds per dollar, and if the number decreases, the dollar appreciates against the pound.

Assessment of Future Exchange Rate Movements

As the chief financial officer of Blades, Inc., Ben Holt is

pleased that his current system of exporting “Speedos”

to Thailand seems to be working well. Blades’ primary

customer in Thailand, a retailer called Entertainment

Products, has committed itself to purchasing a fixed

number of Speedos annually for the next 3 years at a

fixed price denominated in baht, Thailand’s currency.

Furthermore, Blades is using a Thai supplier for some

of the components needed to manufacture Speedos.

Nevertheless, Holt is concerned about recent developments

in Asia. Foreign investors from various countries

had invested heavily in Thailand to take advantage of

the high interest rates there. As a result of the weak

economy in Thailand, however, many foreign investors

have lost confidence in Thailand and have withdrawn

their funds.

Holt has two major concerns regarding these developments.

First, he is wondering how these changes in

Thailand’s economy could affect the value of the Thai

baht and, consequently, Blades. More specifically, he is

wondering whether the effects on the Thai baht may

affect Blades even though its primary Thai customer

is committed to Blades over the next 3 years.

Second, Holt believes that Blades may be able to

speculate on the anticipated movement of the baht, but

he is uncertain about the procedure needed to accomplish

this. To facilitate Holt’s understanding of exchange

rate speculation, he has asked you, Blades’ financial analyst,

to provide him with detailed illustrations of two

scenarios. In the first, the baht would move from a current

level of $.022 to $.020 within the next 30 days.

Under the second scenario, the baht would move from

its current level to $.025 within the next 30 days.

Based on Holt’s needs, he has provided you with the

following list of questions to be answered:

1. How are percentage changes in a currency’s value

measured? Illustrate your answer numerically by

assuming a change in the Thai baht’s value from a

value of $.022 to $.026.

2. What are the basic factors that determine the value

of a currency? In equilibrium, what is the relationship

between these factors?

5. Assume that Thailand’s central bank wishes to

prevent a withdrawal of funds from its country in order

to prevent further changes in the currency’s value. How

could it accomplish this objective using interest rates

51.The Fed is conducting expansionary monetary policy if it:

A increases the discount rate, buys bonds, and sets a lower target for the federal funds rate.

B decreases the discount rate and sells bonds.

C sets a lower target for the federal funds rate and buys bonds in the open market.

D increases reserve requirements and buys bonds in the open market.

E buys bonds in the open market and raises the discount rate.

52.If banks become concerned about future conditions and decide to hold larger excess reserves, which of the following is a likely result?

A A rise in interest rates

B An increase in bond prices

C An increase in aggregate demand

D An increase in the money supply

E Both C and D

53.The Fed is under no obligation to coordinate its actions with fiscal policy. And in fact, the Fed may take actions specifically designed to counteract some piece of fiscal policy. An example of fiscal and monetary policies with opposite effects is:

A an increase in taxes and increased sales of bonds by the Fed.

B a decrease in government spending and an increase in the discount rate.

C a decrease in taxes and a decrease in the target for the federal funds rate.

D an increase in government spending and an increase in reserve requirements.

E a decrease in taxes and increased purchases of bonds by the Fed.

54.In the fictitious nation of Zagora, a worker can produce either 5 books or 10 televisions in an hour. In neighboring Plovdiv, a worker can produce either 3 books or 5 televisions in an hour. Which statement about this situation is true?

A Zagora has comparative advantage in the production of books.

B Zagora has comparative advantage in the production of televisions.

C Workers in Plovdiv can’t possibly compete against the super-productive workers in Zagora.

D Workers in Zagora can’t be expected to compete against the low-wage workers in Plovdiv.

E None of the above

55.Given the U.S. has a current account deficit, a large increase in the demand for U.S. computer programs among Japanese residents will have all the following effects except:

A an increase in the exchange rate, expressed in yen per dollar.

B an increase in the U.S. capital account surplus.

C an increase in investment in Japan.

D an decrease in the U.S. trade deficit.

E It may have all the above effects.

56.Fiscal policy affects exchange rates because:

A as government spending increases, the government must buy more and more goods and services from foreign countries.

B as government debt increases, interest rates rise, and the value of the currency rises.

C as government debt increases, interest rates rise, and the value of the currency falls.

D as the money supply increases, interest rates fall, and the value of the currency rises.

E as the money supply increases, interest rates fall, and the value of the currency falls.

57.There are many kinds of trade restrictions, and trade restrictions are put into place for many reasons. Which of the following is not a reason to use trade restrictions?

A To save natural habitats from over-use

B To protect the jobs of workers in certain industries

C To make a political statement regarding the labor policies of another nation

D To compensate for higher taxes placed on domestic producers

E To create a lower prices for domestic consumers

58.If the value of the U.S. dollar in foreign exchange markets rises:

A U.S. exports will become relatively less expensive.

B capital inflows into the United States will increase.

C people in the U.S. will purchase fewer imports.

D U.S. exports will likely decrease.

E All of the above

59.Saying that leakages equal injections give the equation:

A T + S + X = G + I + M

B Y = C + S + T

C Y = C + I + G + X - M

D T + S + M = C + G + I + X

E T + S + M = G + I + X

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