Chapter 1

Question 1

What does the term “exchange rate” refer to?

a) The value of one country’s currency in terms of another country’s currency.
b) The amount of goods and services a country imports and exports.
c) The rate at which a country’s economy grows or declines over time.
d) The level of inflation within a country’s economy.

Answer 1

A

Question 2

What does our definition state about the exchange rate?

a) It indicates how many units of domestic currency are needed to obtain 1 unit of foreign currency.
b) It specifies how many units of foreign currency are needed to obtain 1 unit of domestic currency.
c) It describes the total value of all currencies in circulation within a country.
d) It represents the ratio of imports to exports in a country’s economy.

Answer 2

B

Question 3

Which equation represents the relationship between the price of a product in foreign currency and the price of the same product in domestic currency, considering the exchange rate?

a) Price in foreign currency = Price in domestic currency + Exchange rate
b) Price in foreign currency = Price in domestic currency - Exchange rate
c) Price in foreign currency = Price in domestic currency / Exchange rate
d) Price in foreign currency = Price in domestic currency * Exchange rate

Answer 3

D

Question 4

What does the law of one price state regarding the relationship between exchange rates and product prices in different countries?

a) Exchange rates should ensure that the price of products in one country is always higher than in the other country.
b) Exchange rates should ensure that the price of products in one country is always lower than in the other country.
c) Exchange rates should be such that the price of products in one country is the same as in the other country, controlling for currency differences.
d) Exchange rates have no effect on product prices in different countries.

Answer 4

C