Question International Monetary Economics

08 Jun Question International Monetary Economics

Question
International Monetary Economics

Directions:. Your answers should be complete, yet concise. Explain your logic and show steps; no credit will be given for answers lacking supporting calculations/discussion. Your goal should be to present a homework set that is complete and easy to grade. Turn in original hardcopies only, no Xeroxes or electronic submissions will be accepted. Please write your name (or names, if you work in a group of two). All members of the group will receive the same grade. Due date: Thursday, September 17th, at the beginning of class.

I. Multiple choice questions (20 points)

1.

If, in 2000, $1 = 1.5 euro, and in 2007, $1 = 0.9 euro, which of the following statements would be true?

A)

More American tourists will find it cheaper to travel to Europe.

B)

More Europeans will stay home as visits to the United States become more expensive.

C)

Europeans will import fewer products from the United States.

D)

Americans will import fewer products from Europe.

Use the following to answer questions 2-3:

Table: Exchange Rates across Currencies

Country

Price per dollar (January 1, 2006)

Canada

$1.2

Japan

120 yen

Mexico

12 pesos

India

45 rupees

2.

(Table: Exchange Rates across Currencies) If the exchange rate on January 1, 2007, is $1 = 144 yen, then:

A)

the dollar has appreciated 10% against the yen.

B)

the dollar has depreciated 24% against the yen.

C)

the yen has depreciated 12% against the dollar.

D)

the yen has depreciated 20% against the dollar.

3.

(Table: Exchange Rates across Currencies) Based on the information provided, 1 Canadian dollar is equal to _____ Mexican pesos and _____ Indian rupees.

A)

12; 73.5

B)

10; 37.5

C)

12; 37.5

D)

12; 45

4.

A crawling peg refers to:

A)

a large and sudden currency depreciation.

B)

a fixed exchange rate regime in which the currency is adjusted very frequently to reflect market conditions.

C)

a managed or dirty float, depending on the business cycle.

D)

a drag on exchange rate adjustment caused by imperfect markets.

5.

Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. If you had $10,000 using arbitrage, your profits would be:

A)

$937.50.

B)

937 pesos.

C)

9600 pesos.

D)

$790.

6.

If a pound of coffee beans costs 85 pesos in Mexico City and 10 pesos = 35 rupees, then the same pound of coffee should cost _________ in New Delhi, under the condition of the law of one price.

A)

300 rupees

B)

297.50 rupees

C)

29,750 rupees

D)

3,500 rupees

Use the following to answer questions 7-8:

Table: Exchange Rates and Prices

Country

Exchange Rate per Dollar

Price of a Computer in Local Currency

Brazil (real)

2.2

1,200

Mexico (peso)

10

6,000

India (rupee)

45

18,000

South Africa (rand)

8

3,500

7.

(Table: Exchange Rates and Prices) Suppose a computer costs $500 in the United States. If PPP were to hold, then the price of a computer in Mexico would be _____ pesos.

A)

500

B)

50

C)

5,000

D)

0.02

8.

(Table: Exchange Rates and Prices) Suppose a computer costs $500 in the United States. With the price of the computer given in local currency, the Indian rupee is _____ by ______%.

A)

overvalued; 9.1

B)

overvalued; 20

C)

undervalued; 12.5

D)

undervalued; 20

9.

An increase in money supply by 15% in the United States would cause the exchange rate to:

A)

appreciate by 15%.

B)

appreciate by 7.5%.

C)

depreciate by 15%.

D)

stay the same.