Exchange Rates

Question 1

What are exchange rates?

Answer 1

An exchange rate is the price of one currency in terms of another

Question 2

What are three types of exchange rates?

Answer 2

A floating exchange rate
A fixed exchange rate
A managed exchange rate

Question 3

What is a floating exchange rate?

Answer 3

A floating exchange rate occurs when governments allow the exchange rate to be determined by market forces

Question 4

What is a fixed exchange rate?

Answer 4

The Central Bank negotiates with the international Monetary Fund to fix their currency to another one

Question 5

What is a managed exchange rate?

Answer 5

The Central Bank determines the preferred currency value - and then the currency is free to fluctuate within a certain range of this value

Question 6

What are factors that affect exchange rate?

Answer 6

Relative interest rates
Relative inflation rates
Net investment
The current account
Speculation
Quantitative easing

Question 7

What are the consequences of competitive devaluation?

Answer 7

it makes the country’s exports cheaper
It is anticompetitive & upsets international competitors

Question 8

What are the impacts of changing exchange rates?

Answer 8

Current account balance
Unemployment
Economic growth
Price stability
Living standards