Since early 1994, the exchange rate of the US $ for the Japanese Yen has changed from $1 = 80 Yen to $1 = 120 Yen (approximately). If this is so, ceteris paribus, then
1. If the Yen price of Japanese-made cars has not changed, US imports of Japanese made cars will tend to have
a. increased in number b. decreased in number
c. increased in $ value but not in number
a. is the answer. Suppose a Toyota used to cost $15,000. In 1994, that was 80 x 15,000 = 1,200,000 Yen. The Yen price does not change, but now 120 Yen = $1, so the car only costs $10,000. So more of them should be sold in the US, the number of cars imported should have increased in number.
2. The number of Japanese tourists visiting Disneyland will tend to have
a. increased in number b. decreased in number c. not changed
b. is the answer. $1 used to cost a Japanese tourist 80 Yen, now it costs 120 Yen so is more expensive, fewer Japanese tourists will buy dollars to come to Disneyland.
3. Japanese financial institutions owning US treasury bonds will, in terms of Yen, have experienced [assume NO interest rate changes]
a. a capital gain b. a capital loss
c. no change in Yen value of the bonds
a is the answer. Suppose they had a $1 million bond. In 1994, it cost 80 million Yen, but now it is worth 120 million Yen -- a nice capital gain in yen.
4. A Japanese company that was considering building a factory in Alabama will see the investment, in terms of the Yen cost,
a. costing more than before b. costing less than before
c. no change
a. Each dollar costs more Yen.
5. If oil is priced in dollars (as it is), other things equal the Yen price paid by Japan for oil imports will have
a. gone down b. gone up c. not changed.
B, again, each dollar costs more Yen, so in Yen the price of oil has gone up.