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Exchange rates

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