News of a decline in leading economic indicators in Europe should

		Will cause the Euro to depreciate against the dollar today because traders believe it will rise in the future with a decline in future output in Europe.
		Will cause the Euro to appreciate against the dollar today, since foreign exchange trades will likely believe the European Central Bank will take measures to stimulate the European economy in the future.
		Will cause the Euro to depreciate against the dollar today because foreign exchange traders understand that government officials often try to paint a better economic forecast than will eventually materialize and so any news of a decline in an leading economic indicator means things will turn out worse than forecast.
		Will cause the Euro to depreciate against the dollar today, since an anticipated decline in future output in Europe will lead to lower interest rates in Europe.
		Have no impact on the current value of the Euro in terms of the dollar since the anticipated decline is in the future and is not impacting current currency fundamentals such as interest rates, money supplies or output.

We can be confident that the Canadian dollar will appreciate in the very short run if Canada

		has a balance of trade surplus
		has net capital inflows
		reduces its tariffs and other trade barriers on American-made goods
		raises its nominal interest rate
		has a lower inflation rate is below than other countries

Suppose the Home central bank cuts its money supply by 2%. In the very short run we would expect

		its currency would appreciate in the foreign exchange market, but the impact on the exchange rate in the very short run would be the same regardless of whether it is viewed by foreign exchange traders as temporary or permanent.
		its currency to depreciate in the foreign exchange market, and that depreciation would be larger if the cut is viewed as permanent versus temporary.
		its currency would depreciate in the foreign exchange market, but the impact on the exchange rate in the very short run would be the same regardless of whether it is viewed by foreign exchange traders as temporary or permanent.
		its currency to appreciate in the foreign exchange market, and that appreciation would be larger if the cut is viewed as permanent versus temporary.
		it would only have an impact on the foreign exchange market in Home.

Suppose the US decides to combat rising prices by reducing its money supply. If the USs foreign trading partners typically experience a J-Curve, this policy should impact them in the following way:

		Initially lead to a decrease in output instead of an increase, since higher interest rates in the US will cause a depreciation of the home currency (E rises). As a result, all foreign goods will cost more, and the initial effect of the policy will be a worsening of the home current account thereby decreasing home output.
		Result initially in an appreciation of the home currency (E falls). Normally this would lead to a decrease in home output, but with a J-Curve, this will instead lead to an increase in home output since the current account will improve, not worsen.
		Produce the same result as in the case without the J-Curve. That is, the home current account will improve and home output will rise.
		Initially lead to an appreciation of the home currency instead of a depreciation (E falls). For this reason, the current account initially gets worse instead of better, since foreign goods will be cheaper in the home country. As a result, home output will fall.

Suppose there is a rumor in the foreign exchange market that the European Central Bank will pursue a looser monetary policy in the near future. The rumor should

		Have no impact on the value of the Euro in terms of the dollar since it is just a rumor.
		Will cause the Euro to appreciate against the dollar today, since foreign exchange traders believe the Euro will rise in the future.
		Will cause the Euro to fall today because traders believe it will rise in the future once the Central Bank loosens the monetary policy.
		Will cause the Euro to rise today, since traders believe it will rise in the future once the Central Bank loosens the monetary policy.
		Will cause the Euro to fall today because traders believe it will fall in the future when the Central Bank loosens the monetary policy.