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10 Cards in this Set
- Front
- Back
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If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar, the euro depreciates from ________ dollars to ________ dollars per euro.
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1.25; 0.83
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In the long run, a rise in a country's price level (relative to the foreign price level) causes its currency to ________, while a rise in the country's relative productivity causes its currency to ________.
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depreciate; appreciate
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When the value of the dollar changes from £0.50 to £0.75, the pound has ________ and the dollar has ________.
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depreciated; appreciated
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Forward exchange rates
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involve the exchange of bank deposits at some specified future date.
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If the interest rate on foreign deposits increases, holding everything else constant,
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the expected return on these deposits must also increase.
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An increase in the foreign interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to depreciate.
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foreign; right
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When Americans and foreigners expect the return on dollar deposits to be high relative to the return on foreign deposits, there is a ________ demand for dollar deposits and a correspondingly ________ demand for foreign deposits.
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higher; lower
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A decrease in the domestic interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to depreciate.
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domestic; left
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When François the Foreigner considers the expected return on dollar deposits in terms of foreign currency, the expected return must be adjusted for
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any expected appreciation or depreciation of the dollar.
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The starting point for understanding how exchange rates are determined is a simple idea called ________, which states that if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it.
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the law of one price
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