Exchange rates

Question 1

Exchange rates

Answer 1

The price of one currency expressed in terms of another currency.

Question 2

Nominal ER

Answer 2

The value of one currency against another i.e. market ER.

Question 3

Real ER

Answer 3

Nominal ER adjusted for relative inflation

Question 4

Trade weighted index

Answer 4

Measures the value of sterling against a basket of currencies, each one weighted to basket of currency, each one weighted to reflect its relative importance for the UK’s trade.

Question 5

Revaluation

Answer 5

Occurs under a fixed ER system when a government decides to officially adjust the value of its currency upwards.

Question 6

Appreciation

Answer 6

Occurs under a floating ER system when the value of a currency is adjusted upwards due to demand and supply.

Question 7

Devaluation

Answer 7

Occur under a fixed ER system when a government decides to officially adjust the value of its currency downwards.

Question 8

Depreciation

Answer 8

Occurs under a floating exchange rate system when the value of a currency is adjusted downwards due to supply and demand.

Question 9

Fixed ER system

Answer 9

Where a country sets the value of its currency to another.

Question 10

Competitive devaluation

Answer 10

To make your exports more competitive