Factors affecting exchange rates Flashcards
True or false. A deficit in current account due to spending more of its currency on importing products than it is earning through sale of exports causes appreciation
False. A deficit in current account due to spending more of its currency on importing products than it is earning through sale of exports causes depreciation
True or false. Government debt is a private debt or national debt owner by the central government
fale. it is a public debt
True or false. A country with government debt is more likely to acquire foreign capital, leading to inflation
false. is less likely
True or false. The terms of trade is the ratio of exports prices and import prices
true
True or false. A country with more risk for political turmoil is more attractive to foreign investors
False. less risk for political turmoil is more attractive
True or false. A country prone to political confusions may see an appreciation in exchange rates
false. depreciation
True or false. When a country experiences a recession, its interest rates are likely to rise, increasing its chances to acquire foreign capital
false. when a country experiences a recession, its interest rates are likely to fall, decreasing its chances to acquire foreign capital
True or false. If a country’s currency is expected to rise, investors will not demand more of that currency in order to make a profit in the future.
false. If a country’s currency is expected to rise, investors will demand more of that currency in order to make a profit in the future.
True or false. Increase in currency value comes a rise in the exchange rates as well
true
True or false. Monetary policy is generally the process by which the central bank or government controls the supply and availability of money, the cost of money and the rate of interest
true
True or false. currency prices can be determined by floating rate only
false. floating and fixed rate
True or false. managed float is determined by the market forces of supply and demand on the global currency markets
false. floating rate
True or false. Floating rate fluctuate freely and may result to either devaluation or revaluation or upvaluation
true
True or false. If the demand for the currency is high the value will increase
true
True or false. Floating rate is a short term moves in a floating exchange rate currency reflect speculation, rumors, disasters, and everyday supply and demand for the currency
False. managed float
True or false. Extreme short-term moves can result in intervention by central banks, even in a floating rate environment
true
True or false. A country’s decision to tie the value of its currency to another country’s currency, fold or a basket of currency is called Mixed exchange rate
False. Fixed exchange rate
true or false. A fixed or pegged rate is determined by the government through its central bank, the rate is set against another major world currency
true
True or false. Law of one price is an economic concept that states that the price of an identical asset or commodity will have the same price globally regardless of the location when certain factors are considered
true
True or false. Purchasing power parity states that the value of 2 currencies is equal when a basket of identical goods is priced the same in both countries
true
