Problem 1: It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce unemployment. Which of the following is an appropriate action given this scenario?
- weaken the dollar.
- strengthen the dollar.
- buy dollars with foreign currency in the foreign exchange market.
- implement a tight monetary policy.
Problem 2: Whitewater Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of goods sold attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above, the dollar value of Whitewater's "earnings before interest and taxes" would _______ if the Canadian dollar appreciates; the dollar value of Whitewater's "earnings before taxes" would _______ if the Canadian dollar appreciates.
- increase; increase
- decrease; increase
- decrease; decrease
- increase; decrease
- increase; be unaffected