Which of the following would increase the supply of U.S. dollars in the foreign exchange market?
- inflation in the U.S. economy
- an increase in U.S. imports
- an increase in tourism to the United States
- higher interest rates in the United States
- higher economic growth abroad
Which of the following is most likely to cause an appreciation of the U.S. dollar against the Mexican peso?
- an increase in Americans traveling to Mexico
- an increase in imports from Mexico
- a decrease in U.S. interest rates
- an increase in U.S. growth
- an increase in U.S. exports to Mexico
Suppose the central bank of country X decides to increase interest rates. Which of the following effects will this decision have on the currency and trade balance of country X, assuming country X is operating under a floating exchange rate regime?
- no effect
- depreciate the currency and worsen the trade balance
- depreciate the currency and improve the trade balance
- appreciate the currency and worsen the trade balance
- appreciate the currency and improve the trade balance