Suppose the Real Exchange Rate Is Such That the Market

question 35

Multiple Choice

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus.This surplus will lead to

• A)an appreciation of the dollar,an increase in U.S.net exports,and so an increase in the quantity of dollars demanded in the foreign exchange market.
• B)an appreciation of the dollar,a decrease in U.S.net exports,and so a decrease in the quantity of dollars demanded in the foreign exchange market.
• C)a depreciation of the dollar,an increase in U.S.net exports,and so an increase in the quantity of dollars demanded in the foreign exchange market.
• D)a depreciation of the dollar,a decrease in U.S.net exports,and so a decrease in the quantity of dollars demanded in the foreign exchange market.

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Definitions:

11%

11% typically refers to an interest or annual rate, indicating that 11 percent of the principal amount will be paid in interest over a year.

Nominal Rate

The promoted or declared rate of interest on a loan or investment, excluding the impacts of compounding and inflation.

Compounded Monthly

Interest calculation method involving the addition of interest to the principal sum of a loan or deposit, repeated every month.

Compounded Semi-Annually

Interest calculation method where interest is added to the principal sum twice a year, leading to interest earnings on interest.