How Does an Increase in the Real Exchange Rate Affect

question 19

Multiple Choice

How does an increase in the real exchange rate affect exports and imports?

• A)Exports increase;imports decrease.
• B)Exports decrease;imports increase.
• C)Exports increase;imports change ambiguously.
• D)Exports change ambiguously;imports decrease.
• E)Exports increase;imports are constant.

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Definitions:

Striking Price

The predetermined price at which the holder of an option contract can buy (call) or sell (put) the underlying asset.

Callable Bonds

Callable bonds are bonds that can be redeemed by the issuer prior to their maturity date at a specified call price.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during its life, usually at the discretion of the bondholder.

Warrants

Financial derivatives that give the holder the right, but not the obligation, to buy or sell a security, usually equity, at a predetermined price before expiration.