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15
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In a fixed exchange rate system, how does the central bank maintain the exchange rate?
By buying or selling domestic currency in the foreign exchan
By adjusting interest rates to influence capital flows.
By letting market forces determine the exchange rate.
By controlling the country's inflation rate.
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15
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A country experiences a decline in its exports and its imports. Which of the following is most likely to have caused these changes?
A decrease in the extent to which the country specialises
A decrease in the country’s exchange rate
An increase in trade liberalisation policies adopted at hom
An increase in both incomes at home and abroad
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trap
No points!
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seesaw
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fairy
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lifesaver
Give 15 points!
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15
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Which of the following is a potential benefit of a depreciating currency for a country?
Reduced purchasing power of imports.
Decreased competitiveness of exports.
Increased cost of foreign debt.
Lower inflation.
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15
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What would cause the exchange rate to depreciate?
An increase in incomes abroad
An increase in domestic incomes
Technological advancement of domestic goods
Export subsidies
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15
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Which of the following best describes a fixed exchange rate system?
Exchange rates are determined by supply and demand in the fo
Exchange rates are determined solely by market forces.
Exchange rates are fixed but can be changed by government in
Exchange rates are pegged to a specific foreign currency or
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15
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In a floating exchange rate system, what primarily determines the value of a currency?
Government intervention in the foreign exchange market.
Economic growth rates.
Fixed exchange rate agreements.
Relative inflation rates between countries.
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lifesaver
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fairy
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rocket
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baam
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15
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What impact is an appreciation of Sterling against the US Dollar likely to have?
More UK consumers will go on holiday to the USA
More US consumers will buy UK exports
UK firms will increase the Sterling prices of their exports
UK consumers will buy fewer US imports
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15
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If a country has a trade deficit, what is likely to happen to its currency in a floating exchange rate system?
Depreciate.
Appreciate.
Remain unchanged.
Experience high volatility.
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seesaw
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fairy
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rocket
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thief
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15
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An appreciation in the value of a country’s currency will lead to:
a fall in the price of imports to that country
a fall in the rate of unemployment
a rise in the rate of inflation
a rise in government spending
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15
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Which change will cause the exchange rate to appreciate?
A decrease in the demand for exports
An increase in interest rates abroad
An increase in the demand for imports
An increase in domestic interest rates
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If a country experiences a decrease in its currency's exchange rate, what is likely to occur?
Lower interest rates.
Reduced inflation.
Decreased cost of imported goods.
Increased competitiveness of its exports.
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15
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Which of the following factors would most likely cause a currency to appreciate?
An increase in the country's inflation rate.
A decrease in the country's exports.
Decreased interest rates
An increase in foreign investment in the country.
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15
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What is meant by the term "exchange rate"?
The rate at which the government exchanges domestic currency
The rate at which one currency can be exchanged for another
The rate at which goods are exchanged between countries.
The rate at which the central bank sets interest rates.
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