Exchange Rates

Question 1

concept of exchange rate

Answer 1

the price of one countries’ currency in terms of another

Question 2

FOREX market

Answer 2

foreign exchange market

a place where currencies can be exchanged for another

Question 3

appreciation

Answer 3

increase in value

*in terms of purchasing power

Question 4

depreciation

Answer 4

decrease in value

*in terms of purchasing power

Question 5

TWI

Answer 5

trade weighted index

measure the change of a country’s currency against the currencies of its major trading partners

Question 6

3 types of exchange rates

Answer 6

fixed
manage
free floating

Question 7

fixed exchange rate

Answer 7

when the value of a currency is tied to one or more other currencies.
controlled by a central authority

Question 8

managed exchange rate

Answer 8

normally allowed to find its own value within a desirable range but is subject to official intervention if it moves outside that desirable range
controlled via a reserve/central bank

Question 9

free floating exchange rate

Answer 9

exchange rate is determined by the forces of supply and demand

Question 10

demand of currency is influenced by

Answer 10

exports of goods and services
receipts of income from overseas
foreign investment
capital inflow

Question 11

supply of currency is influenced by

Answer 11

imports of goods and services
payment of income to overseas
investment aboard
capital outflow

Question 12

factors effecting exchange rate

Answer 12

relative inflation rates 
movements in ToT
domestic economic growth
world economic growth
international capital flows 
relative interest rates  
Commodity prices

Question 13

effects on the economy

Answer 13

net exports 
AE
trade balance and CAD
foreign debt
inflation
a shock absorber 
structural unemployment (2 speed economy)