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increase。 increase。 decrease。 increase。 decrease。 decline D) decline。 increase B) increase。 interest rate differentials Answer: B 14. If inflation increases substantially in Australia while . inflation remains unchanged, this is expected to place _______ pressure on the value of the Australian dollar with respect to the . dollar. A) upward B) downward C) either upward or downward (depending on the degree of the increase in Australian inflation) D) none of these。 inflation differentials D) interest rate differentials。 interest rate differentials B) inflation and interest rate differentials。 reduce D) increase。 increase B) increase。 depreciate D) decrease。 appreciate B) increase。 insensitive C) illiquid。 Answer: C 2. If a currency’s spot rate market is _______, its exchange rate is likely to be _______ to a single large purchase or sale transaction. A) liquid。 C) appreciated。Chapter 4 Answer: C ($ – $)/$ = % 1. The value of the Australian dollar (A$) today is $. Yesterday, the value of the Australian dollar was $. The Australian dollar _______ by _______%. A) depreciated。 B) depreciated。 D) appreciated。 highly sensitive B) illiquid。 highly sensitive D) none of these Answer: E 3. _______ is not a factor that causes currency supply and demand schedules to change. A) Relative inflation rates B) Relative interest rates C) Relative ine levels D) Expectations E) All of these are factors that cause currency supply and demand schedules to change. Answer: B 4. A large increase in the ine level in Mexico along with no growth in the . ine level is normally expected to cause (assuming no change in interest rates o