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chapter 25.doc

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York University
ECON 1010
Steven Edwards

Economics Canada in the Global Environment 7e ParkinChapter 25 The Exchange Rate and the Balance of Payments251 Currencies and Exchange Rates1 Foreign currency isA the market for foreign exchangeB the price at which one currency exchanges for another currencyC foreign notes coins and bank depositsD foreign notes and coins onlyE the purchasing power of foreign moneyAnswerCDiff 1TopicCurrencies and Exchange Rates2 The foreign exchange market isA made up of importers exporters banks international travellers and specialist tradersB the place where people exchange the currencies of different countriesC the market in which approximately 400 trillion in foreign exchange is traded each yearD both A and C are correctE both A and B are correctAnswerDDiff 1TopicCurrencies and Exchange Rates3 The exchange rate is theA volume of currency exchanged between importers and exportersB price at which one currency exchanges for another currencyC rate of currency appreciation or depreciationD percentage change in the volume of currency exchangesE average rate at which foreign currencies are exchangedAnswerBDiff 2TopicCurrencies and Exchange Rates4 If the Canadian dollar depreciates it means thatA one Canadian dollar buys less foreign currencyB inflation has eroded the purchasing power of Canadian moneyC Canadas nominal exchange rate fallsD both A and C are correctE all of the above are trueAnswerDDiff 1TopicCurrencies and Exchange Rates1 2010 Pearson Education Canada5 Suppose that the Canadian dollar exchanges for 090 US dollars and also for 065 Euros A US dollar exchanges forA 100 EuroB 155 EurosC 025 EurosD 139 EurosE 072 EurosAnswerEDiff 2TopicCurrencies and Exchange Rates6 If the exchange rate is 88 US cents per Canadian dollar then A the Canadian dollar is cheaper than the US dollar B the US dollar is more expensive than the Canadian dollar C the Canadian dollar will appreciate D one US dollar will buy 114 Canadian dollars E one US dollar will buy 088 Canadian dollars AnswerDDiff 2TopicCurrencies and Exchange Rates7 Currency depreciation is a reduction in the A precious metal content in coins such as the replacement of silver with copper in quarters B goods and services a currency can purchase within its own country usually the result of a period of inflation C amount of foreign currency that can be obtained in trade for each unit of domestic currency D amount of domestic currency that must be exchanged for a unit of foreign exchange E amount of domestic goods foreign currency can purchase AnswerCDiff 1TopicCurrencies and Exchange Rates8 Appreciation of a currency means A an increase in the amount of goods and services that currency can purchase within its own country B an increase in the precious metal content in coins C a shortage of currency D that currency can buy more foreign currency E that currency can buy less foreign currency AnswerDDiff 1TopicCurrencies and Exchange Rates2 2010 Pearson Education Canada9 Between 2002 and 2007 the Canadian dollarA depreciated against the US dollar B appreciated against the US dollar C remained constant against the US dollar D was not able to vary against the US dollar because the exchange rate was fixed against the Japanese yen E bought the same number of US dollars as the Euro AnswerBDiff 1TopicCurrencies and Exchange Rates10 The market in which the currency of one country is exchanged for the currency of another country is the A money market B capital market C foreign exchange market D forward exchange market E international trading market AnswerCDiff 1TopicCurrencies and Exchange RatesRefer to the table below to answer the following questionsTable 2511Currency2009 Exchange Rate2010 Exchange RateEU euro2 eurosdollar3 eurosdollarJapanese yen120 yendollar90 yendollar11 Refer to Table 2511 Between 2009 and 2010 the Canadian dollarversus the euro andversus the yen A appreciated depreciated B appreciated appreciated C depreciated depreciatedD depreciated appreciated E not changed not changed AnswerADiff 2TopicCurrencies and Exchange RatesSourceStudy Guide3 2010 Pearson Education Canada
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