If investors expect a decrease in the value of the Thai baht vis-à-vis other currencies, their actions will cause:
A. a decrease in Thai interest rates.
B. the expected depreciation to occur much faster.
C. the Thai baht to appreciate immediately.
D. a large inflow of foreign capital into Thailand.
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The _____ effect suggests that speculations can sometimes be destabilizing as the actions of the international investors move the exchange rate away from the long-run equilibrium value consistent with fundamental economic influences.
A. bandwagon
B. overshooting
C. exchange rate
D. arbitrage
The law of one price works well for _____ traded commodities.
A. all
B. rarely
C. heavily
D. domestically
_____ purchasing power parity states that the difference between changes over time in product-price levels in two countries will be offset by the change in the exchange rate over this time.
A. Full
B. Partial
C. Relative
D. Absolute
Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that:
A. the yen is overvalued.
B. the yen value is about correct.
C. the price of a Big Mac in Japan will rise.
D. the dollar will depreciate against the yen.