Question

6. ) means committing oneself to an uncertain future value of one's net worth in terms of home currency A. Selling B. Hedging C. Speculating D. Importing 7. Which of the following groups is most likely to benefit from a strengthening of the U.S. dollar against major currencies?) A. U.S. exporters B. U.S. government C. U.S. consumers D. Foreign consumers 8. Which one of the following mechanisms is NOT an automatic adjustmen t of the current account in fixed exchange rate system?() A. price adjustments B. income adjustments C. interest rate adjustments D. monetary adjustments 9. The J-curve effect describes (). A. the continuous long-term inverse relationship between a country's current account balance and the country's growth in gross national product B. the short run tendency for a country's balance of trade to deteriorate even while its currency is c. the tendency for exporters to initially reduce the price of goods when their own currency appreciates D. the reaction of a country's currency to initially depreciate after the country's inflation rate declines 10. If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to the appreciation of the pound by () A. buying dollars in the forward market for delivery in 30 days B. selling dollars in the forward market for delivery in 30 days C. buying pounds in the forward market for delivery in 30 days D. selling pounds in the forward market for delivery in 30 days

Answer 1

6) Solution: Speculating

Explanation: Speculation refers to the act of taking a net asset position or a net liability position in some class of asset.

7) Solution: U.S. consumers

Explanation: U.S. consumers will benefit because purchasing power will become strong

8) Solution: monetary adjustments

Explanation: The interest rates, prices and income are the automatic adjustment variables that assist to restore current-account equilibrium under a system of fixed exchange rates

9) Solution: the short run tendency for a country's balance of trade to deteriorate even while its currency is depreciating

Explanation: The j-curve effect indicates country's short run tendency for a balance of trade to deteriorate even while the currency is depreciating

10) Solution: Buying the pounds in the forward market for delivery in 30 days

Explanation: Buying the pounds in the forward market with in delivery in a period of 30 days can remove the risk or losses due to the appreciation of pound