Economics MCQs

Page No. 207

If a nation’s interest rates are relatively low compared to those of other countries then the exchange value of its currency will tend to ?


adepreciate under a system of fixed exchange rates


bdepreciate under a system of floating exchange rates


c appreciate under a system of floating exchange rates


dappreciate under a system of floating fixed rates



The theory of international exchange that holds that exchange rates adjust to offset differences in countries inflation rates in the ?


aprice feedback theory


btrade feedback theory


c J-curve theory


dpurchasing power parity theory



The fall in value of one currency relative to another is ?


aa depreciation of a currency


ba strengthening of a currency


ca floating of a currency


dan appreciation of a currency



Expansionary monetary policy ?


atends to lead to an appreciation of a nation’s currency


btends to lead to a depreciation of a nation’s currency


cusually has no effect on a currency’s exchange value


d tends to lead to a depreciation of the currencies of other nations



If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ?


aas the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall


bas the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise


cas the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.


d as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise



In 1971, most countries ?


aadopted a new system of fixed exchange rates


bgave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand


cadopted single internationally accepted currency whose use is limited to international transactions


dreturned to the gold standard



All currencies other than the domestic currency of a given country are referred to as ?


ahard currency


bforeign exchange


creserve currencies


dnear monies


View Answer foreign exchange

Speculators in foreign exchange markets do all of the following except ?


aattempt to profit by trading on expectations about future currency prices


b bear risk as they attempt to ____ beat the market||


cattempt to buy currency at a low price and later resell that currency at a higher price


d Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit



The real effective exchange rate for the U.S dollar ?


a reflects only the influences of merchandise or real trade on the dollar’s exchange value


b reflects only transactions in the currency futures market


c is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?


d is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?



Investor engage in _____ when they move funds into foreign currencies in order to take advantage to interest rates abroad that are higher than domestic interest rates ?


acurrency arbitrage


b interest arbitrage


cshort positions


dlong positions


View Answer interest arbitrage

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