Questions

Chapter 16

5. What is the real exchange rate? Explain why economic decisions will be based more on movements in the real exchange rate than the nominal rate.

7. What is the law of one price? How does it relate to purchasing power parity? How is the law of one price achieved under fixed exchange rates? Floating exchange rates?

9. How will a reduction in interest rates in the United States affect the exchange value of the dollar? An increase? How would an increase in interest rates outside the United States affect the exchange value of the dollar?

Chapter 17

2. Explain why the United States has so many more commercial banks than other countries?

6. What role is played by the interbank system? Is the interbank system more important in the United States than in places dominated by large branch banks or universal banks?

8. What is meant by the liquidity provision function?

Chapter 18

4. How have economies of scale affected concentration of large mutual fund complexes in the mutual fund industry? How have economies of scope affected the configuration of products offered by funds in the industry?

10. Why do you suppose the money market mutual fund industry is dominated by funds that use amortized cost pricing of their shares (over those that mark their portfolios to market)? Why are amortized cost funds more vulnerable to swings in investor demand?

14. How do shares in ETFs differ from those in open‐end funds?