What is meant by a depreciation in the foreign exchange rate?
The government intervenes to reduce the exchange rate of the country’s currency.
The rate of exchange of exports for imports for a country deteriorates.
The rate of inflation in a country continues to rise.
The value of a country’s currency falls on the international exchange market.
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What is the most accurate definition of a foreign exchange rate?
a rate at which exports are exchanged for imports
a rate determined by the demand and supply of the currency
a value of a currency as fixed by the government
a value of a currency expressed in terms of another currency
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A country has experienced a devaluation of its currency.
What are the likely results of the devaluation?
| imports | exports | |
|
A B C D |
price decreases price decreases price increases price increases |
value decreases value increases quantity decreases quantity increases |
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1 markWhat happens when a country's currency appreciates?
Imports become more expensive, while exports become cheaper
Imports become cheaper, while exports become more expensive
Both imports and exports become cheaper
Both imports and exports become more expensive
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1 markWhat is a floating exchange rate?
An exchange rate that is fixed by the government
An exchange rate that is determined solely by market forces
An exchange rate used in bartering between countries
An exchange rate that is set by international organisations
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The world demand for oil is price-inelastic and oil is paid for in US dollars.
If the price of oil falls rapidly, how might it affect the exchange rate of the US dollar?
| market for US dollar | exchange rate for US dollar | |
|
A B C D |
greater demand for US$ greater supply of US$ less demand for US$ less supply of US$ |
value increases value falls value falls value increases |
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The table shows the current account balance for four countries in 2016. It also shows each country’s exchange rate against the US dollar for 2015 and 2016.
Which country had a trade surplus and a strengthened currency against the US dollar?
| country | current account balance US$ billion 2016 |
number of units of currency against US dollar |
||
| 2015 | 2016 | |||
|
A B C D |
Australia Belgium China Taiwan |
–47.9 +4.8 +266.6 +74.7 |
1.39 0.92 6.48 32.90 |
1.38 0.96 6.95 32.00 |
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1 markWhich of the following is not a disadvantage of a a Fixed Exchange Rate Mechanism?
In order to maintain the fixed exchange rate, the Central Bank has to regularly intervene in the currency market
Changing the interest rate to influence the exchange rate can reduce consumption
Even with increasing demand, the price of its exports will remain fixed as the currency will not appreciate with more demand
Intervening in the currency market can be an expensive policy
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1 markRelative inflation rates influence exchange rates.
If a country's inflation rate is significantly lower than that of its trading partners, what effect might this have on its exchange rate?
The exchange rate will appreciate
The exchange rate will depreciate
The exchange rate will remain unchanged
The exchange rate will be fixed by international agreements
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1 markWhat is the main goal of currency speculation?
To stabilise exchange rates between countries
To maintain a fixed exchange rate regime
To make a profit in the short and medium term
To stop exchange rate fluctuations
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What would increase the demand for a country’s currency on the foreign exchange market?
a decrease in its inward investment
a decrease in its rate of interest
an increase in its exports
an increase in its imports
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What usually decreases when there is a depreciation of a country’s foreign exchange rate?
the level of national debt
the level of trade protection
the price of exports
the price of imports
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Changes in the foreign exchange rate of a country resulted in a depreciation of its currency.
What is not likely to happen?
The costs of imported raw materials will fall.
The country’s export trading position will become more competitive.
The country’s residents will find it more expensive to take holidays abroad.
The current account deficit will be unchanged.
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The Mexican currency (the peso) has fallen in value against the US dollar.
What will be the effect of this on the Mexican economy?
a decrease in tariffs on imports
a decrease in the price of exports
a decrease in the price of imports
a decrease in the volume of exports
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1 markIn a floating exchange rate system, what happens when a country's currency appreciates?
Imports become more expensive, while exports become cheaper
Imports become cheaper, while exports become more expensive
Both imports and exports become cheaper
Both imports and exports become more expensive
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