Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
QUIZ 5 (Chapter 13)
Multiple Choice
Instructions: Read the following questions carefully and choose the answer that best
describes. There are 40 questions in total and each question has 2.5 points (100 points in
total). This is an open-book test. The given time for this quiz is 60 minutes.
Question 1 Multiple Choice
Exchange rates affect:
Answer
a. international trade flows.
b. international investment flows.
c. corporate earnings.
d. All of the above are affected.
Question 2 Multiple Choice
The price of a foreign currency expressed in terms of the home currency is called:
Answer
a. the exchange rate.
b. the rate of depreciation.
c. the dollar/yen ratio.
d. the opportunity cost.
Question 3 Multiple Choice
Normally, exchange rates are expressed as:
Answer
a. the number of units of the currency per one ounce of gold.
b. the GDP of one nation as a percentage of the GDP of the other.
c. the price of one unit of foreign currency expressed in terms of the domestic currency.
d. ratios of the value of one nation's wealth compared to the other.
Question 4 Multiple Choice
To keep things straight and avoid confusion, it is important to:
Answer
a. know exactly what the exchange rate signifies in terms of which currency is the
denominator.
b. watch for ways the currency might lose value.
c. learn about recent behavior of the exchange rate.
d. know exactly what the rate is at any moment in time.
Question 5 Multiple Choice
The notation for the euro/dollar exchange rate is:
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
Answer
a. FX €/$.
b. FX $/€.
c. E€/$
d. E$/€.
Question 6 Multiple Choice
Generally, exchange rates are quoted as a single price of a unit of foreign currency rather
than a ratio because:
Answer
a. the ratio of the units of home currency to units of foreign currency is always equal to one.
b. the denominator is always equal to 1.
c. the price is fixed by the government.
d. the rate is adjustable in increments of 25 basis points.
Question 7 Multiple Choice
The equation E$/£ = 2 means that:
Answer
a. 1 dollar buys 2 pounds.
b. 1 dollar buys 1/2 of a pound.
c. 2 pounds buy 1 dollar.
d. 1 dollar buys 1 pound.
Question 8 Multiple Choice
If the dollar-euro exchange rate on June 30, 2010, is $1.225 per euro, then the euro-dollar
exchange rate would be:
Answer
a. €2.45 per dollar.
b. €0.816 per dollar.
c. €1.225 per dollar.
d. €1 per dollar.
Question 9 Multiple Choice
The equation E¥/£ = 10 means that:
Answer
a. 1 yen buys 10 pounds.
b. 0.1 yen buys 1 pound.
c. 10 yen buy 1 pound.
d. 0.01 yen buys 1 pound.
Question 10 Multiple Choice
If we compare the exchange rate between two nations, expressed in the domestic currency
with the same rate expressed in units of the foreign currency, it will be obvious that:
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
Answer
a. they are both equal to 1.
b. they cancel each other out.
c. one is always the reciprocal of the other.
d. they can never coexist.
Question 11 Multiple Choice
If, in 2000, $1 = 1.5 euro, and in 2007, $1 = 0.9 euro, which of the following statements
would be true?
Answer
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.
Question 12 Multiple Choice
A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome.
Thus, $1 is equal to:
Answer
a. 1 euro.
b. 2 euros.
c. 1.67 euros.
d. 0.6 euro.
Question 13 Multiple Choice
Table: Exchange Rates across Currencies
Country Price per dollar (January 1, 2006)
Canada $1.2
Japan 120 yen
Mexico 12 pesos
India 45 rupees
Reference: Ref 2-1
(Table: Exchange Rates across Currencies) If the exchange rate on January 1, 2007, is $1 =
144 yen, then:
Answer
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.
Question 14 Multiple Choice
Table: Exchange Rates across Currencies
Country Price per dollar (January 1, 2006)
Canada $1.2
Japan 120 yen
Mexico 12 pesos
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
India 45 rupees
Reference: Ref 2-1
(Table: Exchange Rates across Currencies) Based on the information provided, which of the
following statements is true?
Answer
a. 1 peso = 10 yen.
b. 1 rupee = 10 yen.
c. 1 peso = 3 rupees.
d. $1 Canadian = 35 rupees.
Question 15 Multiple Choice
Table: Exchange Rates across Currencies
Country Price per dollar (January 1, 2006)
Canada $1.2
Japan 120 yen
Mexico 12 pesos
India 45 rupees
Reference: Ref 2-1
(Table: Exchange Rates across Currencies) Based on the information provided, 1 Canadian
dollar is equal to _____ Mexican pesos and _____ Indian rupees.
Answer
a. 12; 73.5
b. 10; 37.5
c. 12; 37.5
d. 12; 45
Question 16 Multiple Choice
If a nation's currency buys fewer units of a foreign currency today than yesterday, we say the
value of its currency has:
Answer
a. appreciated.
b. depreciated.
c. stagnated.
d. become inverted.
Question 17 Multiple Choice
If today €1 exchanges for ¥135, and tomorrow €1 exchanges for ¥150, we say the euro has:
Answer
a. appreciated.
b. depreciated.
c. stagnated.
d. become inverted.
Question 18 Multiple Choice
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
When a nation's currency appreciates, it purchases _____ units of a foreign currency and it
is said to _____.
Answer
a. fewer; strengthen
b. more; strengthen
c. fewer; weaken
d. more; weaken
Question 19 Multiple Choice
If one nation's currency strengthens against a foreign currency, the other nation's currency
must _____ against the domestic currency.
Answer
a. strengthen
b. equalize
c. weaken
d. appreciate
Question 20 Multiple Choice
When the dollar declines in value against a foreign currency, it is called:
Answer
a. an appreciation.
b. a depreciation.
c. an inflation.
d. a deflation.
Question 21 Multiple Choice
In European terms, when the exchange rate for the U.S. dollar increases:
Answer
a. the dollar has appreciated.
b. the dollar has depreciated.
c. the euro has appreciated.
d. the dollar has weakened.
Question 22 Multiple Choice
Which of the following statements are equivalent to an appreciation of the dollar relative to
the euro?
Answer
a. The dollar buys more euros now.
b. The euro buys fewer dollars now.
c. The dollar buys more euros now, and the euro buys fewer dollars now.
d. The euro buys more dollars now.
Question 23 Multiple Choice
Ironically, when the dollar “cost” of a unit of foreign currency falls, the dollar is actually _____
against the foreign currency.
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
Answer
a. depreciating
b. appreciating
c. equalizing
d. holding its own
Question 24 Multiple Choice
If a euro costs $1.25 today, and it costs $1.50 tomorrow, what has happened to the dollar-
euro exchange rate?
Answer
a. The dollar has depreciated and the euro has depreciated.
b. The dollar has appreciated and the euro has depreciated.
c. The dollar has depreciated and the euro has appreciated.
d. The dollar has appreciated and the euro has appreciated.
Question 25 Multiple Choice
It is customary to express changes in the exchange rates of two currencies over time as:
Answer
a. the loss of purchasing power of one currency divided by the loss of purchasing power of
the other currency.
b. the percentage change expressed as an appreciation or depreciation of one against the
other.
c. a ratio of the absolute values (without signs).
d. a ratio of the price of gold in each nation.
Question 26 Multiple Choice
In general, the percentage of appreciation of one nation's currency is equal to:
Answer
a. its rate of growth of real GDP.
b. its purchasing power.
c. its population growth.
d. the percentage of depreciation of the foreign nation's currency.
Question 27 Multiple Choice
Slight discrepancies in the rates of appreciation versus depreciation of two currencies are
related to:
Answer
a. a mathematical quirk that percentage increases are always larger than percentage
decreases because in the first case the denominator is smaller.
b. the imprecise nature of the calculations.
c. the lack of reliable information.
d. the volatile nature of exchange rates.
Question 28 Multiple Choice
Changes in exchange rates are usually expressed in percentage terms. The percentage rate
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
of appreciation for one currency will be close to the rate of depreciation for the other nation
whenever:
Answer
a. the change in the rate is very small.
b. the exchange rates are very different in quantitative terms.
c. the change in the rate is very large.
d. one exchange rate is 50% more than the other one at the time of the change.
Question 29 Multiple Choice
If E$/£ moves from 2 to 3, this is a percentage change of:
Answer
a. 50%.
b. 33.3%.
c. –33.3%.
d. –50%.
Question 30 Multiple Choice
If E$/£ increases by 20%, this is consistent with:
Answer
a. an increase from 4 to 5.
b. an increase from 4 to 6.
c. an increase from 5 to 6.
d. an increase from 4 to 7.
Question 31 Multiple Choice
Table: Currency Values I
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-2
(Table: Currency Values I) The U.S. dollar appreciated against the _________.
Answer
a. Mexican peso and Japanese yen.
b. Mexican peso and Indian rupee.
c. euro and Japanese yen.
d. euro and the Indian rupee.
Question 32 Multiple Choice
Table: Currency Values I
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-2
(Table: Currency Values I) The U.S. dollar depreciated against the _________ and the
________.
Answer
a. euro; Indian rupee
b. Indian rupee; Japanese yen
c. Mexican peso; Japanese yen
d. euro; Japanese yen
Question 33 Multiple Choice
Table: Currency Values I
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-2
(Table: Currency Values I) The U.S. dollar appreciated against the peso by _____.
Answer
a. 2.4%
b. 24%
c. 10%
d. 12.4%
Question 34 Multiple Choice
Table: Currency Values I
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-2
(Table: Currency Values I) The U.S. dollar depreciated against the euro by ______.
Answer
a. 0.6%
b. 1%
c. 40%
d. 100%
Question 35 Multiple Choice
Table: Currency Values II: How Much 1 U.S. Dollar Will Buy of Other Currencies in
2007 and 2008
Currency 2007 2008
$1 1.5 euros 1 euro
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-3
(Table: Currency Values II) The dollar appreciated against which currencies?
Answer
a. the euro
b. the real
c. the pound and the rupee
d. the euro and the pound
Question 36 Multiple Choice
Table: Currency Values II: How Much 1 U.S. Dollar Will Buy of Other Currencies in
2007 and 2008
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-3
(Table: Currency Values II) The dollar depreciated against which currencies?
Answer
a. the euro
b. the real
c. the pound
d. the euro and the real
Question 37 Multiple Choice
Table: Currency Values II: How Much 1 U.S. Dollar Will Buy of Other Currencies in
2007 and 2008
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-3
(Table: Currency Values II) The dollar rose against the rupee by _____.
Answer
a. 111%
b. 11%
c. 1%
d. –1%
Question 38 Multiple Choice
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
Table: Currency Values II: How Much 1 U.S. Dollar Will Buy of Other Currencies in
2007 and 2008
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-3
(Table: Currency Values II) The dollar depreciated against the euro by ______.
Answer
a. –33%
b. 3%
c. 33%
d. 50%
Question 39 Multiple Choice
Table: Currency Values II: How Much 1 U.S. Dollar Will Buy of Other Currencies in
2007 and 2008
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-3
(Table: Currency Values II) In 2007, how many euros would it take to buy 1 pound?
Answer
a. 0.75
b. 1.33
c. 1.5
d. 3
Question 40 Multiple Choice
Table: Currency Values II: How Much 1 U.S. Dollar Will Buy of Other Currencies in
2007 and 2008
Currency 2007 2008
$1 1.5 euros 1 euro
$1 2 Brazilian reais 1.5 Brazilian reais
$1 2 British pounds 3 British pounds
$1 45 Indian rupees 50 Indian rupees
Reference: Ref 2-3
(Table: Currency Values II) Between 2007 and 2008, how did the euro do against the British
pound?
Answer
Chapter 13 Introduction to Exchange Rates and the Foreign Exchange Market
a. It appreciated.
b. It held steady.
c. It depreciated.
d. Not enough information is provided to know how well the euro did.
The End.
