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

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bdepreciate under a system of floating exchange rates

✓


c appreciate under a system of floating exchange rates

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dappreciate under a system of floating fixed rates

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View Answer depreciate under a system of floating exchange rates

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


aprice feedback theory

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btrade feedback theory

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c J-curve theory

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dpurchasing power parity theory

✓


View Answer purchasing power parity theory

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


aa depreciation of a currency

✓


ba strengthening of a currency

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ca floating of a currency

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dan appreciation of a currency

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View Answer a depreciation of a currency

Expansionary monetary policy ?


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

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

✓


cusually has no effect on a currency’s exchange value

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

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View Answer tends to lead to a depreciation of a nation’s currency

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

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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

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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

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

In 1971, most countries ?


aadopted a new system of fixed exchange rates

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

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

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dreturned to the gold standard

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

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


ahard currency

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bforeign exchange

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creserve currencies

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dnear monies

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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

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

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

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

✓


View Answer 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

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b reflects only transactions in the currency futures market

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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?

✖


View Answer is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted 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

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b interest arbitrage

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cshort positions

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dlong positions

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View Answer interest arbitrage

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