In an Open Economy Under Flexible Exchange Rates,a Reduction in Consumer

question 58

Multiple Choice

In an open economy under flexible exchange rates,a reduction in consumer confidence that causes a reduction in consumption will cause which of the following?

• A)an appreciation of the domestic currency
• B)a reduction in the exchange rate, E
• C)a reduction in net exports
• D)all of the above
• E) none of the above

---

Definitions:

Black-Scholes

A mathematical model used to price European options and derivatives by estimating the variation over time of financial instruments.

Standard Deviation

The positive square root of the variance.

Option Theta

A measure of the rate of decline in the value of an option due to the passage of time.

Time To Expiration

Time to expiration refers to the remaining period until the expiration date of a financial contract, such as an option or futures contract.