31 Questions
What makes the FOREX market?
Trading currencies and bank deposits
What are spot transactions in the FOREX market?
Near-immediate exchange of bank deposits at spot rates
What are forward transactions in the FOREX market?
Exchanges at some future date completed at forward rate
Why are exchange rates important?
They affect the competitiveness of domestic goods in foreign markets
$f(x) = (1.23-1.18)/1.18$ represents:
$f(x)$ for calculating percentage appreciation of euro
$f(x) = (0.812-0.847)/0.847$ represents:
$f(x)$ for calculating percentage depreciation of dollar
According to the Law of One Price (LOOP), what happens if the price of an identical good is not the same throughout the world?
Arbitrage opportunities arise and people work to equalize the prices
What does the Theory of Purchasing Power Party (PPP) suggest will happen if a country's domestic price level increases?
The domestic currency will depreciate
What are some of the problems with the Theory of Purchasing Power Party (PPP)?
All goods are not identical in both nations and many goods and services are not traded
According to the Big Mac Index, what should be true if the Law of One Price (LOOP) applies?
Big Macs should cost the same worldwide and can be used to calculate exchange rates
What factors affect exchange rates in the long run according to the text?
Relative price levels, Tariffs and quotas, Preferences for domestic vs foreign goods, Productivity
How do interest rate changes affect exchange rates according to the text?
When domestic real interest rate increases, domestic currency appreciates
What was a significant event related to the Subprime Crisis and the Dollar according to the text?
Flight to quality T-bonds led to a sudden increase in dollar value by end of October 2008
What happens when there is a rise in price level according to exchange rate determination?
Currency depreciates
What does an increase in demand for domestic goods relative to foreign goods cause according to exchange rate determination?
Exchange rate goes up
How do tariffs and quotas affect exchange rates according to the text?
Increasing trade barriers cause currency to depreciate
What does The Economist's Big Mac Index aim to show?
Under/overvaluation of currencies based on Big Mac prices worldwide
According to the Law of One Price (LOOP), if the price of an identical good is not the same throughout the world, what will happen?
Arbitrage opportunities will exist and people will take advantage of them to equalize the prices
What does an increase in domestic real interest rate lead to, according to exchange rate determination?
Appreciation of the domestic currency
What does a rise in price level cause according to exchange rate determination?
Depreciation of the currency
What is one of the factors affecting exchange rates in the long run according to the text?
$Relative$ $price$ $levels$
$f(x) = (0.812-0.847)/0.847$ represents:
$-0.0412$
$f(x) = (1.23-1.18)/1.18$ represents:
$0.0424$
What does the FOREX market primarily involve?
Trading currencies and bank deposits
What is the primary purpose of forward transactions in the FOREX market?
Exchanging at a future date to mitigate exchange risk
Why are exchange rates important in the context of international trade?
They impact the competitiveness of domestic goods in foreign markets
$f(x) = (0.812-0.847)/0.847$ represents:
$f(x)$ is the percentage change in the value of the dollar from 1999 to 2010
$f(x) = (1.23-1.18)/1.18$ represents:
$f(x)$ calculates the percentage change in the value of a specific currency from 1999 to 2010
What happens when a country's currency appreciates?
Domestic goods become more expensive for foreign buyers
What impact does volatility have on the FOREX market?
It increases uncertainty and risk in currency trading
What does an increase in demand for domestic goods relative to foreign goods cause according to exchange rate determination?
It leads to an appreciation of the domestic currency
Test your knowledge of the foreign exchange market and its impact on the competitiveness of US businesses over the years. Learn about factors such as currency strength, exchange rate transactions, and the global dynamics that influence the FOREX market.
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