4. Which of the following events is MOST likely to cause the Yen to depreciate?

Question

      4. Which of the following events is MOST likely to cause the Yen to depreciate?

a. If Japanese governments lowered interest rates in order to stimulate its economy

b. If Japan exported fewer goods from the U.S. and Europe because of trade restrictions

c. If the U.S. imported more products from Japan thanks to a strong expansion in the U.S.

d. If more Americans traveled to Japan because more of them reached retirement

e. If the Tokyo stock exchange was booming

    5. If Argentina pegged its peso to the U.S. dollar and investors thought that the Peso was about to depreciate, what could Argentina's government do to keep its currency   fixed?

a. Use currency from its foreign exchange reserves like dollars to buy Argentinian government bonds

b. Sell U.S. dollars from their foreign exchange reserves for other foreign currencies like yens or Euros

c. Print more Chilean pesos and use them to buy dollars and Euros

d. Import more products from Europe and the U.S.

e. Use Argentinean pesos to buy stocks in Chilean stock market

6. Which of the following events will increase the amounts of dollars exchanged in the Foreign Exchange Market and will cause the dollar to depreciate?

a. If investors were expecting a rally (a rise in prices) in the New York Stock Exchange

b. If more American traveled to China for vacation and business

c. If Americans expected the Euro to depreciate

d. If Canada (our biggest trade partner) imported more American products

e. If the Deutche Borse (German stock market) collapsed

Explanation / Answer

4. Option A.

As the interest rates are lowered in the economy, there would be a capital outflow from the country and into the nation where the interest rates are higher, the yen would be demanded less leading to currency depreciation.

5. Option C.

If the exchnage rate is fixed, then in order to keep it as it is, the government needs to have more foreign currency UDS in stock to meet the demand. This can be done by printing more money and using that to buy USD.

6. Option A.

there is an inverse relation between the price of the stock and the interest artes, as the interest rate falls, there is captial otuflow and the currency depreciates.

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