If the Equilibrium Exchange Rate Between U

question 63

Multiple Choice

If the equilibrium exchange rate between U.S.dollars and Japanese yen is $0.008 = 1 yen,but currently the exchange rate is $0.007 = 1 yen,then with flexible exchange rates the dollar price of a yen will __________,and the dollar will __________.

• A) increase; appreciate
• B) decrease; appreciate
• C) increase; depreciate
• D) decrease; depreciate

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Definitions:

Market Efficiency

A condition in financial markets where prices fully reflect all available information, leading to assets being priced accurately and trades being executed fairly.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and the government.

Semi-Strong Form

The semi-strong form is a level of market efficiency theory suggesting that asset prices reflect all publicly available information.

Mechanistic Hypothesis

The hypothesis that share prices respond mechanistically to changes in accounting numbers, ignoring the effects of accounting policies.