1. What is the difference between a direct quotation of an exchange rate and an indirect quotation?
2. Suppose that the euro falls in value relative to the dollar. What is the likely effect on European exports to the United States? What is the likely effect on U.S. exports to Europe?
3. A student makes the following observation: It currently takes 80 yen to buy 1 U.S. dollar, which shows that the United States must be a much wealthier country than Japan. But it takes more than 1 U.S. dollar to buy 1 British pound, which shows that Great Britain must be a wealthier country than the United States. Briefly explain whether you agree with the student's reasoning.