International Economics, 8e (Krugman)
Chapter 13 Exchange Rates and the Foreign Exchange Market: An Asset Approach 13.1 Exchange Rates and International Transactions
1) How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the
exchange rate is 1.25 dollars per one British pound? A) 50 dollars
B) 60 dollars
C) 70 dollars
D) 62.5 dollars
E) 40 British pounds
Answer: D
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2) How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the
exchange rate is 1.50 dollars per one British pound? A) 50 dollars
B) 60 dollars
C) 70 dollars
D) 80 dollars
E) 75 dollars
Answer: E
Question Status: Previous Edition
3) How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the
exchange rate is 1.80 dollars per one British pound? A) 40 dollars
B) 90 dollars
C) 50 dollars
D) 100 dollars
E) 95 dollars
Answer: B
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4) The Japanese currency is called the
A) DM. B) Yen.
C) Euro.
D) Dollar.
E) Pound.
Answer: B
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5) How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange
rate is 1.50 dollars per British pound? A) 10 British pounds
B) 20 British pounds
C) 30 British pounds
D) 35 British pounds
E) 25 British pounds
Answer: C
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6) How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange
rate is 1.80 dollars per British pound? A) 10 British pounds
B) 25 British pounds
C) 20 British pounds
D) 30 British pounds
E) 40 British pounds
Answer: B
Question Status: Previous Edition
7) How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange
rate is 2.00 dollars per British pound? A) 22.5 British pounds
B) 32.5 British pounds
C) 12.5 British pounds
D) 40 British pounds
E) 30 British pounds
Answer: A
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8) How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange
rate is 1.60 dollars per British pound? A) 38.125 British pounds
B) 28.125 British pounds
C) 48.125 British pounds
D) 58.125 British pounds
E) 18.125 British pounds
Answer: B
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9) What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 50
dollars in New York and 100 Pounds in London? A) 1.5 dollars per British pound
B) 0.5 dollars per British pound
C) 2.5 dollars per British pound
D) 3.5 dollars per British pound
E) 2 dollars per British pound
Answer: B
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10) What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 60
dollars in New York and 30 Pounds in London? A) 1.5 dollars per British pound
B) 0.5 dollars per British pound
C) 2.5 dollars per British pound
D) 3.5 dollars per British pound
E) 2 dollars per British pound
Answer: E
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11) When a country's currency depreciates,
A) foreigners find that its exports are more expensive, and domestic residents find that imports from
abroad are more expensive.
B) foreigners find that its exports are more expensive, and domestic residents find that imports from
abroad are cheaper.
C) foreigners find that its exports are cheaper; however, domestic residents are not affected.
D) foreigners are not affected, but domestic residents find that imports from abroad are more expensive.
E) None of the above.
Answer: E
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12) An appreciation of a country's currency,
A) decreases the relative price of its exports and lowers the relative price of its imports.
B) raises the relative price of its exports and raises the relative price of its imports.
C) lowers the relative price of its exports and raises the relative price of its imports.
D) raises the relative price of its exports and lowers the relative price of its imports.
E) None of the above.
Answer: D
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13) Which one of the following statements is the most accurate?
A) A depreciation of a country's currency makes its goods cheaper for foreigners.
B) A depreciation of a country's currency makes its goods more expensive for foreigners.
C) A depreciation of a country's currency makes its goods cheaper for its own residents.
D) A depreciation of a country's currency makes its goods cheaper.
E) None of the above.
Answer: A
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14) Which of the following statements is the most accurate?
A) The U.S. and Canadian dollar have traded roughly at par since 1970.
B) The exchange rate (U.S.$ per Canadian$) has always been less than one since 1970.
C) The U.S. and Canadian dollar traded roughly at par in the early 1970s and as of 2006, is nearing par as
the Canadian dollar rises.
D) The U.S. and Canadian dollar traded roughly at par in the early 1970s and as of 2006, is nearing par as
the Canadian dollar falls. E) None of the above.
Answer: C
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15) If the goods' money prices do not change, an appreciation of the dollar against the pound
A) makes British sweaters cheaper in terms of American jeans.
B) makes British sweaters more expensive in terms of American jeans.
C) doesn't change the relative price of sweaters and jeans.
D) makes American jeans cheaper in terms of British sweaters.
E) None of the above.
Answer: A
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16) If the goods' money prices do not change, a depreciation of the dollar against the pound
A) makes British sweaters cheaper in terms of American jeans.
B) makes British sweaters more expensive in terms of American jeans.
C) makes American jeans more expensive in terms of British sweaters.
D) doesn't change the relative price of sweaters and jeans.
E) None of the above.
Answer: B
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17) In the year 2000, Americans flocked to Paris. What economic forces made French goods appear so cheap to
residents of the United States?
Answer: One major factor was a sharp fall in the dollar price of France's currency after 1998.
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18) Based on the case study, \
costly to the Toronto Blue Jays baseball team than errors in the field.
Answer: See end of Section 1. The Toronto team has most of its revenue paid in Canadian dollars, but most of
its expenses are players' salaries paid in U.S. dollars. Since the Canadian dollar has depreciated
substantially, it causes big losses for the team by raising its expenses relative to its receipts. To protect itself from the vagaries of the exchange rate, the team tries to predict its need for U.S. dollars ahead of time so that it can sell Canadian dollars and purchase the American currency in advance to lock in the exchange rate. Errors in the currency market can thus be more costly to the team than on the field.
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19) Compute how many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British
pounds for the following exchange rates?
Answer:
Question Status: Previous Edition
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