Foreign Exchange

What is an exchange rate?

• The rate at which goods are exchanged between two countries

• The price of one nation's currency in terms of another's

• How many US dollars you can exchange for RMB at Travelex

• The price of goods in terms of a foreign currency

Tags

CCSS.6.RP.A.3B

How is an exchange rate determined in the money market?

• The forces of supply and demand

• Government/the Federal Reserve Bank

• Whatever sellers of goods are willing to take

• Investors decide the value of the currency they wish to invest

Why do changing exchange rates help one country and hurt the other?

• One side loses purchasing power and the other gains it

• Takes money away from one side and gives it to the other

• Causes war between the two countries

• One country's government introduces tariffs to protect local industries

What type of exchange rate system do most countries operate under?

• Flexible

• Floating

• Fictitious

• Fixed

What is the difference between a fixed rate exchange system and a floating rate system?

• Government sets rate vs market sets rate

• Doesn't exist vs does exist

• Never changing vs always changing

• Currency never appreciates vs can appreciate

If the US $ were to appreciate in relation to the Euro, what effect would this have?

• European consumers would have more purchasing power in US

• US consumers can buy more European goods and services for fewer $$

• US consumers can buy more English goods and services for fewer $$

• European tourists to the US will spend more $$

How does inflation rate affect currency value/exchange rate?

• Higher inflation leads to depreciating currency & vice versa

• Increasing inflation leads to more favourable exchange rates

• Higher inflation leads to currency appreciation

• Lower inflation leads to more favourable exchange rate

If the Mexican Peso depreciates in relation to the Chinese Yuan, how is Mexico affected?

• Mexico has less purchasing power in Chinese currency

• Mexico benefits from increased purchasing power

• Mexico would have more Chinese investors

• They would be invaded by China

The currency exchange rate of the South African rand for the Botswana pula fell by 5.7% between August 2014 and August 2015. What would be the immediate effect of this?

• Botswana’s level of protection would fall.

• Botswana’s tourists travelling to South Africa would find it less expensive

• South Africa’s imports would be cheaper.

• South Africa’s tourists travelling to Botswana would receive more pula per rand

What is likely to cause a rise in a country’s foreign exchange rate?

• a fall in its exports of goods and services

• a fall in its imports of goods and services

• a fall in its inflow of income

• a rise in its outflow of transfers