exchange rate

Question 1

exchange rate def

Answer 1

the price of a currency expressed against another, or group pf
currencies, on the foreign exchange market.

Question 2

appreciation def

Answer 2

A Rise in the currency under a free floating mechanism

Question 3

depreciation def

Answer 3

A Fall in a currency under a free floating mechanism

Question 4

the forex market

Answer 4

a global decentralized market for the trading of currencies.

Question 5

the forex market demand and supply

Answer 5

graph of one currency to another

Question 6

change in the exchange rate

Answer 6

an apreciation of one currency is always accompanied by a depreciation of the other currency

Question 7

exchange rate system

Answer 7

• fixed exchange rate
• managed exchange rate
• floating exchange rate

Question 8

fixed exchange rate

Answer 8

exists where the price of one currency against another is fixed on the foreign exchange market. Currently, this is the situation with the Chinese Yuan to the US$.

Question 9

managed exchange rate

Answer 9

system of exchange rates where governments intervene to influence the price of their currency.

Question 10

floating exchange rate

Answer 10

one where the price of one currency against another is determined by market forces on the foreign exchange market.

Question 11

determinants of floating exchange rate

Answer 11

• tastes and preferences
• interest rates
• price level
• speculation
• incomes

Question 12

effect of appreciation

Answer 12

• inflation lower
• very slow economic growth
• unemployment rate increase if net export decrease
• deficit in the balance of payments
• financial account should move towards surplus as the country become more attractive for foreign

Question 13

effect of depreciation

Answer 13

• inflation increase
• economic growth increase
• current account getting close to surplus
• financial account towards deficit

Question 14

pros of floating exchange rate

Answer 14

• monetary policy freedom=central bank can focus on something else
• automatic adjustment
• foreign reserve is empty

Question 15

cons of floating exchange rate

Answer 15

• reduce the risk of speculation
• inflation is not controlled, it needs to be control for economic growth
• investor confidence is lost

Question 16

devaluation def

Answer 16

is a decision made by a central bank or government where the value of a currency is decreased relative to another currency under a fixed exchange mechanism.

Question 17

revaluation def

Answer 17

is a decision made by a central bank or government where the value of a country is increased relative to another country under a fixed exchange mechanism.