An exchange rate system in which the exchange rate for converting one currency into another is set by international governmental agreement is called a ________ system.
A) floating exchange-rate
B) fixed exchange-rate
C) cross rate
D) spot rate
Question 2
Suppose Country A has a currency called the Pulse (P). At the beginning of the year, the exchange rate between the Pulse and the U.S. dollar was P150/.
The inflation rate in Country A is running at an annual rate of 250 percent, whereas inflation in the U.S. is running at 2 percent. Which of the following would most likely be the new exchange rate that Color-Me-Green can expect at the end of the year?
A) P525/
B) P514.70/
C) P43.71/
D) 43.71/P
Question 3
Suppose Sam then noticed that the actual euro/dollar exchange rate on currency markets is 1.2/, and that a kilogram of wheat still costs 1 in the U.S. and 1.5 in France. Sam then knows that ________.
A) the expected exchange rate between the euro and the dollar is 1.5/
B) wheat is priced higher in France
C) wheat is priced lower in France
D) an arbitrage opportunity does not exist in the international wheat market
Question 4
In Country B, Color-Me-Green is faced with a tight labor market and a low unemployment rate. This low unemployment rate will most likely result in ________.
A) lower interest rates
B) lower wages for workers
C) higher purchasing power
D) higher rate of inflation
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