Exchange Rates and Trade: Impact on International Business

Question 1

How does a depreciation of the domestic currency generally affect exports?

Accepted Answer

Exports become cheaper in foreign markets.

Answer

Exports become more expensive in foreign markets.

Answer

Exports are unaffected.

Answer

Exports are prohibited.

Question 2

Which of the following is a potential advantage of a floating exchange rate system?

Accepted Answer

Automatic adjustment to market forces

Answer

Stability in currency values

Answer

Protection from speculative attacks

Answer

Reduced volatility in trade volumes

Question 3

How does an appreciation of the foreign currency typically affect imports?

Accepted Answer

Imports become more expensive in the domestic market.

Answer

Imports become cheaper in the domestic market.

Answer

Imports are unaffected.

Answer

Imports are taxed.

Question 4

What is the J-curve effect in relation to exchange rates and trade?

Accepted Answer

A short-term decrease in exports followed by a long-term increase

Answer

A short-term increase in exports followed by a long-term decrease

Answer

A constant increase in exports

Answer

A constant decrease in exports

Question 5

How do exchange rates influence the relative prices of goods and services?

Accepted Answer

By affecting the purchasing power of currencies

Answer

By changing the cost of production

Answer

By altering consumer preferences

Answer

By manipulating government subsidies

Question 6

A depreciation of the domestic currency will lead to:

Accepted Answer

An increase in exports

Answer

No change in trade flows

Answer

An increase in imports

Answer

A decrease in both exports and imports

Question 7

A currency peg is a type of fixed exchange rate regime where:

Accepted Answer

The domestic currency is fixed to another currency

Answer

The exchange rate is allowed to fluctuate within a narrow band

Answer

The government sets the exchange rate

Answer

The exchange rate is determined by supply and demand

Question 8

Which of the following is a potential problem with a flexible exchange rate regime?

Accepted Answer

Exchange rate volatility

Answer

Low interest rates

Answer

Reduced economic growth

Answer

Increased government intervention

Question 9

The real exchange rate measures the:

Accepted Answer

Price of domestic goods in terms of foreign goods

Answer

Interest rate differential between two countries

Answer

Inflation rate differential between two countries

Answer

Value of the domestic currency in terms of foreign currencies

Question 10

An overvalued real exchange rate can lead to:

Accepted Answer

A trade deficit

Answer

No impact on trade

Answer

Increased exports and decreased imports

Answer

A trade surplus

Question 11

The J-curve effect refers to the:

Accepted Answer

Initial deterioration of the trade balance after a currency depreciation

Answer

Long-term improvement of the trade balance after a currency appreciation

Answer

Immediate improvement of the trade balance after a currency depreciation

Question 12

How can exchange rate volatility affect businesses involved in international trade?

Accepted Answer

Lower profits and higher financial risk

Answer

Increased export opportunities and lower import costs

Answer

Improved competitiveness for domestic producers

Answer

No significant impact on business operations

Question 13

Which of the following is NOT a key determinant of exchange rates?

Accepted Answer

Government spending

Answer

Interest rates

Answer

Trade balance

Answer

Inflation rate

Question 14

The elasticity of demand for a good:

Accepted Answer

Measures the responsiveness of quantity demanded to changes in price

Answer

Is always less than 1

Answer

Is always greater than 1

Question 15

A country with a relatively high level of productivity is likely to have a:

Accepted Answer

Stronger currency

Answer

Lower level of exports

Answer

Weaker currency

Answer

Higher trade deficit

Question 16

Which of the following can lead to an increase in the demand for a country's currency?

Accepted Answer

Increased foreign investment

Answer

Increased domestic inflation

Answer

Devaluation of the currency

Answer

High unemployment rate

Question 17

Which of the following is a potential negative consequence of a fixed exchange rate system?

Accepted Answer

Loss of monetary policy autonomy

Answer

Increased foreign investment

Answer

Reduced inflation

Answer

Increased trade volume

Question 18

A fall in the value of the pound sterling against the euro would have what impact on British exports to the Eurozone?

Accepted Answer

They would become cheaper and, therefore, more competitive.

Answer

Their price would remain unchanged.

Answer

They would become more expensive and, therefore, less competitive.

Question 19

Which of the following is a potential benefit of a strong exchange rate?

Accepted Answer

Lower import prices.

Answer

Higher export prices.

Answer

Reduced foreign investment.

Answer

Increased trade deficit.

Question 20

What is the J-curve effect?

Accepted Answer

A temporary deterioration in the trade balance after a devaluation, followed by an improvement in the long run.

Answer

A permanent worsening of the trade balance after a devaluation.

Question 21

The Marshall-Lerner condition states that:

Accepted Answer

The sum of the absolute values of the elasticities of demand for imports and exports must be greater than one.

Answer

The exchange rate must be fixed.

Question 22

How does the real exchange rate differ from the nominal exchange rate?

Accepted Answer

The real exchange rate considers the difference in inflation rates between countries.

Answer

The nominal exchange rate is the spot exchange rate.

Answer

The real exchange rate is always higher than the nominal exchange rate.

Question 23

How does a depreciation impact the trade deficit?

Accepted Answer

It can potentially reduce the trade deficit.

Answer

It has no impact on the trade deficit.

Answer

It will increase the trade deficit if the Marshall-Lerner condition is not met.

Answer

It will always increase the trade deficit.

Question 24

What is the impact of a revaluation on a country's currency value?

Accepted Answer

It increases in value.

Answer

The impact depends on the elasticity of demand for the currency.

Answer

It decreases in value.

Answer

It remains unchanged.

Question 25

Which of the following is a potential benefit of a currency depreciation?

Accepted Answer

Increased exports

Answer

Reduced domestic demand

Answer

Higher inflation

Answer

Lower interest rates

Question 26

The J-curve effect refers to the:

Accepted Answer

Temporary improvement in trade balance after a currency depreciation, followed by a decline

Answer

Permanent decline in trade balance after a currency appreciation

Answer

Fluctuation in exchange rates over time

Question 27

Which of the following is NOT a tool used by central banks to influence exchange rates?

Accepted Answer

Fiscal policy

Answer

Interest rate policy

Answer

Foreign exchange intervention

Answer

Capital controls

Question 28

A country with a comparative advantage in producing a certain good:

Accepted Answer

Can produce it at a lower opportunity cost than other countries

Answer

Can produce it in greater quantities than other countries

Answer

Has a higher demand for it than other countries

Question 29

According to the Marshall-Lerner condition, a country's trade balance will improve if:

Accepted Answer

The sum of the absolute values of import and export demand elasticities is greater than one

Answer

The exchange rate remains constant

Answer

The import demand elasticity is greater than the export demand elasticity

Question 30

The impact of exchange rates on trade is primarily determined by:

Accepted Answer

The relative prices of goods and services in different countries

Answer

The level of domestic demand

Answer

The availability of foreign currency

Question 31

What is the relationship between exchange rates and the prices of goods and services?

Accepted Answer

An increase in the exchange rate makes domestic goods more expensive and foreign goods cheaper.

Answer

An increase in the exchange rate makes domestic goods cheaper and foreign goods more expensive.

Answer

Exchange rates have no impact on the prices of goods and services.

Question 32

How does a depreciation of the domestic currency affect exports?

Accepted Answer

It makes exports cheaper for foreign consumers.

Answer

It makes exports more expensive for domestic consumers.

Answer

It makes exports more expensive for foreign consumers.

Answer

It has no effect on exports.

Question 33

Which of the following is a potential benefit of a strong exchange rate?

Accepted Answer

Cheaper imports for consumers.

Answer

Reduced foreign investment.

Answer

Increased exports.

Answer

Higher inflation.

Question 34

What is the J-curve effect?

Accepted Answer

The initial worsening of the trade deficit following a depreciation of the domestic currency.

Answer

The long-term improvement of the trade deficit following an appreciation of the domestic currency.

Answer

The short-term improvement of the trade deficit following a depreciation of the domestic currency.

Question 35

Which of the following is a potential consequence of a persistent trade deficit?

Accepted Answer

Depreciation of the domestic currency.

Answer

Appreciation of the domestic currency.

Answer

No change in the exchange rate.

Question 36

How does an exchange rate affect the competitiveness of domestic firms in international markets?

Accepted Answer

A weaker exchange rate makes domestic firms more competitive.

Answer

Exchange rates have no impact on the competitiveness of domestic firms.

Answer

A stronger exchange rate makes domestic firms more competitive.

Question 37

Which of the following is a potential benefit of a weaker exchange rate?

Accepted Answer

Increased exports.

Answer

Reduced economic growth.

Answer

Higher inflation.

Answer

Reduced imports.

Question 38

Which of the following is NOT a fundamental factor that affects exchange rates?

Accepted Answer

Domestic consumption patterns

Answer

Government intervention

Answer

Inflation rates

Answer

Interest rate differentials

Question 39

The real exchange rate primarily measures the:

Accepted Answer

Purchasing power of a currency relative to another currency

Answer

Nominal value of a currency

Answer

Interest rate differential between two countries

Question 40

The J-curve effect in international trade occurs when:

Accepted Answer

The initial impact of a currency depreciation on the trade balance is negative, followed by a positive impact

Answer

The impact of a currency appreciation is always positive on the trade balance

Question 41

Which potential negative consequence may arise from a持續 overvalued currency?

Accepted Answer

Reduced exports and increased imports

Answer

Improved terms of trade

Answer

No impact on trade

Answer

Increased exports and reduced imports

Question 42

The elasticity of demand for imported goods signifies the:

Accepted Answer

Quantity of imports' responsiveness to changes in the exchange rate

Answer

Quantity of exports' responsiveness to changes in the exchange rate

Answer

Exchange rate's responsiveness to changes in the quantity of exports

Question 43

Which of these is a potential benefit of currency devaluation?

Accepted Answer

Increased domestic production and job creation

Answer

Decreased domestic consumption

Answer

More severe inflation

Answer

Reduced foreign investment

Question 44

If the British pound rises against the US dollar, what is the likely impact on UK exports to the US?

Accepted Answer

UK exports become more expensive in the US, potentially reducing demand.

Answer

UK exports become cheaper in the US, leading to increased demand.

Answer

The demand for UK exports remains unaffected.

Question 45

A country experiencing a currency devaluation is likely to see which of the following?

Accepted Answer

Increased exports and potentially a trade surplus.

Answer

Decreased exports and potentially a trade deficit.

Answer

No change in trade volume.

Answer

Increased imports and potentially a trade deficit.

Question 46

Which factors can influence exchange rates?

Accepted Answer

All of the above.

Answer

Interest rate differentials between countries.

Answer

Changes in investor confidence and market sentiment.

Answer

Government policies and interventions.

Question 47

A country with a fixed exchange rate system is likely to face which of the following challenges?

Accepted Answer

Limited ability to respond to economic shocks.

Answer

Increased exchange rate volatility.

Answer

Reduced trade competitiveness.

Answer

Higher inflation due to printing more money.

Question 48

Assume the UK pound falls against the euro. Which of the following is a probable result?

Accepted Answer

UK exports to the Eurozone become cheaper, potentially increasing demand.

Answer

UK exports to the Eurozone become more expensive, potentially reducing demand.

Answer

The demand for UK exports to the Eurozone remains unchanged.

Question 49

What term refers to the exchange rate that equalizes the prices of a basket of goods and services in two countries?

Accepted Answer

Purchasing Power Parity (PPP)

Answer

Nominal Exchange Rate

Answer

Floating Exchange Rate

Answer

Real Exchange Rate

Question 50

A country facing a significant trade deficit might consider which of the following policies to improve its trade balance?

Accepted Answer

Devaluing its currency to boost export competitiveness.

Answer

Appreciating its currency to lower import costs.

Answer

Imposing tariffs on imports to discourage purchases.

Question 51

If the demand for a country's currency rises, what is the likely impact on its exchange rate?

Accepted Answer

The currency will strengthen (appreciate).

Answer

The currency will remain unchanged.

Answer

The currency will weaken (depreciate).

Answer

The currency will fluctuate erratically.

Question 52

Which of the following is an example of a country with a floating exchange rate regime?

Accepted Answer

United Kingdom

Answer

China

Answer

Saudi Arabia

Answer

Switzerland

Question 53

How can exchange rate fluctuations impact the profitability of multinational corporations with operations in multiple countries?

Accepted Answer

Fluctuations can affect the value of their foreign currency earnings and expenses.

Answer

Fluctuations can make it easier to manage foreign currency risk.

Answer

Fluctuations have no impact on the profitability of multinational corporations.