Exchange Rates: Determinants, Regimes, and Impact on Businesses and Consumers

Question 1

Which of the following is NOT a commonly recognized determinant of exchange rates?

Accepted Answer

Population growth

Answer

Interest rates

Answer

Inflation rates

Answer

Political stability

Question 2

Which of the following is a benefit of a floating exchange rate regime for businesses engaged in international trade?

Accepted Answer

Automatic adjustment to economic imbalances

Answer

Increased stability in the exchange rate

Answer

Government control over the exchange rate

Answer

Reduced volatility in the foreign exchange market

Question 3

The forward exchange rate represents:

Accepted Answer

The expected exchange rate in the future

Answer

The current exchange rate

Answer

The historical average exchange rate

Answer

The desired exchange rate set by the central bank

Question 4

Which of the following is NOT a primary factor influencing exchange rates?

Accepted Answer

Changes in consumer preferences

Answer

Economic growth

Answer

Government fiscal policy

Answer

Interest rates

Question 5

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

Accepted Answer

Fiscal policy

Answer

Open market operations

Answer

Currency swaps

Answer

Quantitative easing

Question 6

Which of the following is NOT a determinant of exchange rates in a floating exchange rate regime?

Accepted Answer

Natural disasters

Answer

Interest rates

Answer

Inflation

Answer

Political stability

Question 7

What type of exchange rate regime allows the exchange rate to fluctuate freely without government intervention, and is often preferred by countries with strong economies and stable financial systems?

Accepted Answer

Floating exchange rate

Answer

Fixed exchange rate

Answer

Managed float

Answer

Crawling peg

Question 8

Which of the following government policies can lead to an appreciation of a country's currency?

Accepted Answer

Contractionary monetary policy

Answer

Expansionary fiscal policy

Answer

Devaluation

Answer

Appreciation

Question 9

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

Accepted Answer

Makes exports cheaper and increases demand

Answer

Makes exports more expensive and reduces demand

Answer

Has no impact on export demand

Answer

Makes exports less competitive in the long term

Question 10

Which of the following is a characteristic of a managed float exchange rate regime?

Accepted Answer

The exchange rate is allowed to fluctuate within a certain range, typically determined by the central bank

Answer

The government sets a fixed value for the exchange rate

Answer

The government intervenes heavily in the foreign exchange market to keep the exchange rate within a specific range

Answer

The exchange rate is determined solely by market forces

Question 11

How can market sentiment affect exchange rates?

Accepted Answer

Positive sentiment can strengthen the currency, while negative sentiment can weaken it

Answer

Market sentiment has no impact on exchange rates

Answer

Positive sentiment can weaken the currency, while negative sentiment can strengthen it

Answer

Market sentiment only affects exchange rates in countries with weak economies

Question 12

Which of the following is NOT claimed as an advantage of a fixed exchange rate regime?

Accepted Answer

Increased competitiveness of domestic exports

Answer

Reduced exchange rate volatility

Answer

Increased certainty for businesses

Answer

Lower transaction costs for international trade

Question 13

How does a crawling peg exchange rate regime attempt to balance exchange rate stability and flexibility?

Accepted Answer

By gradually adjusting the exchange rate in small increments to maintain a target level

Answer

By setting a fixed exchange rate within a narrow range

Answer

By allowing the exchange rate to fluctuate freely within a wide band

Answer

By heavily intervening in the foreign exchange market to keep the exchange rate at a specific level

Question 14

How do significant exchange rate fluctuations affect consumers' purchasing power and travel plans?

Accepted Answer

Reduce local purchasing power, making imported goods more expensive.

Accepted Answer

Hinder travel plans, making destinations less affordable.

Answer

Increase local purchasing power, making imported goods cheaper.

Answer

Enhance travel opportunities, making destinations more affordable.

Question 15

Which of the following factors does NOT influence the exchange rate between two currencies?

Accepted Answer

Solar activity

Answer

Relative levels of economic growth

Answer

Government intervention

Answer

Political stability

Question 16

What is the term for a system where the exchange rate is set by government action and is not free to fluctuate based on market forces?

Accepted Answer

Fixed exchange rate

Answer

Flexible exchange rate

Answer

Floating exchange rate

Answer

Dual exchange rate

Question 17

Which of the following is an advantage of allowing the exchange rate to be determined by market forces?

Accepted Answer

Automatic adjustment to economic imbalances

Answer

Increased stability for businesses

Answer

Control over inflation

Answer

Elimination of currency speculation

Question 18

What is the impact of a depreciation in the value of the pound sterling on UK businesses that sell goods overseas?

Accepted Answer

Increased export revenue

Answer

Decreased export revenue

Answer

No significant impact on export revenue

Answer

Increased import costs

Question 19

What is the term for the difference between the price at which a currency can be bought and the price at which it can be sold?

Accepted Answer

Spread

Answer

Margin

Answer

Commission

Answer

Premium

Question 20

What is the primary purpose of the International Monetary Fund (IMF)?

Accepted Answer

To promote international monetary cooperation and exchange rate stability

Answer

To regulate global trade and investment

Answer

To provide aid to developing countries

Answer

To enforce economic sanctions

Question 21

Which of the following is a risk associated with speculating on currencies?

Accepted Answer

Loss of capital

Answer

Legal liability

Answer

Environmental damage

Answer

Damage to reputation

Question 22

What is the term for a country that maintains a fixed exchange rate by holding a reserve of foreign currency or gold?

Accepted Answer

Currency board

Answer

Managed float

Answer

Fixed exchange rate system

Answer

Flexible exchange rate system

Question 23

Which of the following is a benefit of using forward exchange contracts for businesses?

Accepted Answer

Locking in the exchange rate for future transactions

Answer

Eliminating the risk of exchange rate fluctuations

Answer

Increasing profit margins

Answer

Reducing operating costs