Under a fixed exchange rate, if the central bank has to constantly sell foreign currencies, it should let its domestic currency __and its GDP is likely to _. a. Appreciate; improve O b. Depreciate; worsen O c. Depreciate; improve O d. Appreciate; worsen

If one Canadian dollar buys US$0.85, and one Euro buys US$1.20, then one Euro should buy O a. C$1.02 O b. C$1.41 O c. C$2 O d. C$1.64

If Canadian exports of goods and services were $37 billion, imports of goods and services were $42 billion, transfers by Canadians to foreigners were $3 billion and transfers from foreigners to Canadian citizens were $2 billion, then the current account balance would be O A. $4 billion. O B. - $6 billion. O C. $8 billion O D. $6 billion. O E. - $4 billion.

In the long run, with variable real exchange rates, if American goods become less attractive relative to European goods, the dollar will experience a real and a nominal | O appreciation; appreciation O appreciation; depreciation O depreciation; appreciation O depreciation; depreciation

Please state why it’s wrong or uncertain if applicable

If the demand for the dollar decreases on the international market, or the supply of the dollar increases, the value of the dollar will decline. O True O False

You observe the following exchange rates Spot GBP/EUR exchange rate 1.120 € per £ 3 month GBP/EUR forward rate 1.115 Which of the following statements is likely to be true? Select one: O a. Neither of the other options O b. UK interest rates are lower than Eurozone interest rates O c. Speculators are expecting GBP to depreciate against EUR for the next year. d. UK interest rates arhigher than Eurozone interest rates. O e. Speculators are expecting GBP to appreciate against EUR for the next year.

QUESTION 2 In the long run, an increase in the nominal exchange rate is likely to lead to Note: Multiple answers are possible. O A. an increase in exports ) B. a decrease in exports C. an increase in imports D. a decrease in imports

Answer and Breif explantion

What does interest rate parity refer to? Inflation rates in all countries are identical O a. O b. Real exchange rates in all countries are identical None of the answers is correct O d. Nominal interest rates in all countries are identical