IGCSE Economics- Trade, BOP & Exchange Rates

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

According to the table, what is the Euro equivalent of 1 USD?

• 1.32 Euros

• 0.53 Euros

• .76 Euros

• 1.59 Euros

According to the table, what is the USD equivalent of 1 Australian?

• 0.97 USD

• 1.32 USD

• 1.28 USD

• 1.03 USD

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