Factors affecting exchange rates

Question 1

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

Answer 1

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

Question 2

True or false. Government debt is a private debt or national debt owner by the central government

Answer 2

fale. it is a public debt

Question 3

True or false. A country with government debt is more likely to acquire foreign capital, leading to inflation

Answer 3

false. is less likely

Question 4

True or false. The terms of trade is the ratio of exports prices and import prices

Answer 4

true

Question 5

True or false. A country with more risk for political turmoil is more attractive to foreign investors

Answer 5

False. less risk for political turmoil is more attractive

Question 6

True or false. A country prone to political confusions may see an appreciation in exchange rates

Answer 6

false. depreciation

Question 7

True or false. When a country experiences a recession, its interest rates are likely to rise, increasing its chances to acquire foreign capital

Answer 7

false. when a country experiences a recession, its interest rates are likely to fall, decreasing its chances to acquire foreign capital

Question 8

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.

Answer 8

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.

Question 9

True or false. Increase in currency value comes a rise in the exchange rates as well

Answer 9

true

Question 10

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

Answer 10

true

Question 11

True or false. currency prices can be determined by floating rate only

Answer 11

false. floating and fixed rate

Question 12

True or false. managed float is determined by the market forces of supply and demand on the global currency markets

Answer 12

false. floating rate

Question 13

True or false. Floating rate fluctuate freely and may result to either devaluation or revaluation or upvaluation

Answer 13

true

Question 14

True or false. If the demand for the currency is high the value will increase

Answer 14

true

Question 15

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

Answer 15

False. managed float

Question 16

True or false. Extreme short-term moves can result in intervention by central banks, even in a floating rate environment

Answer 16

true

Question 17

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

Answer 17

False. Fixed exchange rate

Question 18

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

Answer 18

true

Question 19

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

Answer 19

true

Question 20

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

Answer 20

true