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In a floating exchange rate system, what primarily determines the value of a currency?
 
Relative inflation rates between countries.
 
Government intervention in the foreign exchange market.
 
Fixed exchange rate agreements.
 
Economic growth rates.
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.
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.
If a country experiences a decrease in its currency's exchange rate, what is likely to occur?
 
Increased competitiveness of its exports.
 
Decreased cost of imported goods.
 
Reduced inflation.
 
Lower interest rates.
What is the primary purpose of a floating exchange rate system?
 
To allow exchange rates to be determined by supply and deman
 
To stabilize exchange rates and promote international trade.
 
To minimize fluctuations in the exchange rate.
 
To fix the exchange rate to a specific value against another
A country's currency appreciates when:
 
Its interest rates rise relative to those of other countries
 
Its inflation rate is lower than that of other countries.
 
Its exports exceed imports.
 
Its central bank sells its currency in the foreign exchang
What is meant by the term "exchange rate"?
 
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 government exchanges domestic currency
 
The rate at which the central bank sets interest rates.
Which of the following is a potential benefit of a depreciating currency for a country?
 
Reduced purchasing power of imports.
 
Increased cost of foreign debt.
 
Decreased competitiveness of exports.
 
Lower inflation.
In a country with high inflation relative to its trading partners, what is likely to happen to its currency in the long run?
 
Depreciate.
 
Appreciate.
 
Remain unchanged.
 
Experience high volatility.
Which of the following best describes a fixed exchange rate system?
 
Exchange rates are pegged to a specific foreign currency or
 
Exchange rates are determined solely by market forces.
 
Exchange rates are fixed but can be changed by government in
 
Exchange rates are determined by supply and demand in the fo
Which of the following factors would most likely cause a currency to appreciate?
 
An increase in foreign investment in the country.
 
Decreased interest rates
 
A decrease in the country's exports.
 
An increase in the country's inflation rate.
A Central Bank is operating a fixed exchange rate. What intervention can it take to prevent the value of the currency falling?
 
Selling foreign currency reserves
 
Decreasing the interest rate
 
Imposing tariffs
 
Quantitative easing
What would cause the exchange rate to depreciate?
 
An increase in domestic incomes
 
An increase in incomes abroad
 
Export subsidies
 
Technological advancement of domestic goods
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 consumers will buy fewer US imports
 
UK firms will increase the Sterling prices of their exports
An appreciation in the value of a country’s currency will lead to:
 
a fall in the price of imports to that country
 
a rise in government spending
 
a rise in the rate of inflation
 
a fall in the rate of unemployment
A country is faced with a surplus in the current account of its balance of payments and unemployment. Which of the following would reduce both of these problems?
 
A decrease in its interest rates
 
A decrease in its government spending on education
 
An increase in its rate of corporation tax
 
An increase in the value of its currency
Which change will cause the exchange rate to appreciate?
 
An increase in domestic interest rates
 
A decrease in the demand for exports
 
An increase in interest rates abroad
 
An increase in the demand for imports
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 both incomes at home and abroad
 
An increase in trade liberalisation policies adopted at hom
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