If the exchange rate changes from 20 cents per franc to 18 cents per franc, the U.S. dollar has
a. appreciated, since its value has increased
b. appreciated, since its value has declined
c. depreciated, making French goods more expensive in U.S. dollars
d. depreciated, since its value has declined
e. depreciated, since its value has increased
QUESTION 2If the discount rate is 5 percent, the present value of annual 100,000 payments in perpetuity (i.e., continued indefinitely into the future) is
a. 2,000,000
b. 1,246,296
c. 1,000,000
d. 976,463
e. infinite
QUESTION 3If on Monday you can buy 13 Mexican pesos per U.S. dollar and on Wednesday you can buy 15 Mexican pesos per U.S. dollar,
a. both the U.S. dollar and the Mexican peso have appreciated
b. both the U.S. dollar and the Mexican peso have depreciated
c. the U.S. dollar has appreciated and the Mexican peso has depreciated
d. the U.S. dollar has depreciated and the Mexican peso has appreciated
e. the Mexican peso has appreciated and the U.S. dollar has remained constant
QUESTION 4A firm is considering the purchase of a piece of equipment that will add 200 per year to the firm's revenue forever. If the interest rate is 10 percent, the firm will purchase the equipment so long as it costs less than
a. 1,000
b. 2,000
c. 4,000
d. 6,000
e. 8,000
QUESTION 5From the U.S. perspective, a drop in the price of foreign exchange means that
a. fewer U.S. dollars are needed to purchase foreign currency
b. more U.S. dollars are needed to purchase foreign currency
c. worldwide, imports will become more expensive
d. worldwide, exports will become cheaper
e. transaction costs on international markets will decrease
QUESTION 6The present value of an annuity that pays 100 each year indefinitely (i.e., a perpetuity) is 2,000 if the interest rate is 5 percent.
a. True
b. False
QUESTION 7A drop in dollar price of British pounds means that
a. fewer dollars are needed to buy British pounds
b. more dollars are needed to buy British pounds
c. the mark has appreciated
d. the dollar has depreciated
e. British goods are now more expensive to Americans