Question 1: If U.S. inflation suddenly increased while European inflation stayed the same, there would be:
a. an increased U.S. demand for euros and an increased supply of euros for sale.
b. a decreased U.S. demand for euros and an increased supply of euros for sale.
c. a decreased U.S. demand for euros and a decreased supply of euros for sale.
d. an increased U.S. demand for euros and a decreased supply of euros for sale
Question 2. A domestic firm that produces and sells its products in one country:
a. Can have no foreign exchange risk.
b. Could face foreign exchange risk.
c. Can face no political risk.
d. Is an example of a market imperfection.