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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?
An increase in both incomes at home and abroad
An increase in trade liberalisation policies adopted at hom
A decrease in the country’s exchange rate
A decrease in the extent to which the country specialises
Which change will cause the exchange rate to appreciate?
A decrease in the demand for exports
An increase in the demand for imports
An increase in interest rates abroad
An increase in domestic interest rates
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 its rate of corporation tax
A decrease in its government spending on education
An increase in the value of its currency
An appreciation in the value of a country’s currency will lead to:
a fall in the rate of unemployment
a rise in government spending
a fall in the price of imports to that country
a rise in the rate of inflation
What impact is an appreciation of Sterling against the US Dollar likely to have?
UK consumers will buy fewer US imports
More US consumers will buy UK exports
UK firms will increase the Sterling prices of their exports
More UK consumers will go on holiday to the USA
What would cause the exchange rate to depreciate?
Export subsidies
An increase in incomes abroad
Technological advancement of domestic goods
An increase in domestic incomes
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
Imposing tariffs
Quantitative easing
Selling foreign currency reserves
Which of the following factors would most likely cause a currency to appreciate?
Decreased interest rates
An increase in foreign investment in the country.
A decrease in the country's exports.
An increase in the country's inflation rate.
Which of the following best describes a fixed exchange rate system?
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 determined solely by market forces.
Exchange rates are pegged to a specific foreign currency or
In a country with high inflation relative to its trading partners, what is likely to happen to its currency in the long run?
Depreciate.
Experience high volatility.
Remain unchanged.
Appreciate.
Which of the following is a potential benefit of a depreciating currency for a country?
Lower inflation.
Decreased competitiveness of exports.
Increased cost of foreign debt.
Reduced purchasing power of imports.
What is meant by the term "exchange rate"?
The rate at which one currency can be exchanged for another
The rate at which the central bank sets interest rates.
The rate at which the government exchanges domestic currency
The rate at which goods are exchanged between countries.
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 exports exceed imports.
Its inflation rate is lower than that of other countries.
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 fix the exchange rate to a specific value against another
To minimize fluctuations in the exchange rate.
If a country experiences a decrease in its currency's exchange rate, what is likely to occur?
Decreased cost of imported goods.
Lower interest rates.
Reduced inflation.
Increased competitiveness of its exports.
In a fixed exchange rate system, how does the central bank maintain the exchange rate?
By controlling the country's inflation 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.
