IB Economics - Exchange rates

What is an advantage of a floating exchange rate?

• There is no advantage

• Interest rates are free to be employed to domestic goals

• Reduced speculation from foreign investors

• High consumer and business confidence

Which of the following is not a type of exchange rate?

• Fixed Exchange Rates

• Floating Exchange Rates

• Secure Exchange Rates

• Managed Exchange Rates

Which of these only has an indirect effect on exchange rates?

• Higher domestic demand

• Selling of foreign currency by private agents

• Central banking selling foreign reserves

The impact of a country's exchange rate appreciation in its current account balance is

• Negative

• Positive

If 1 USD costs 4 BRL (1 BRL=0.25 USD) and the BRL depreciates the new exchange rate could be

• 1 BRL = 0.10 USD

• 1 BRL = 0.50 USD

A depreciation of a country's currency means for this country's residents that imported goods are

• Cheaper

• More expensive

An increase of a country's interest rates should

• Attract more capital flows

• Lead to capital outflows

An appreciation of a country's currency means that for foreigners this country's goods are

• Cheaper

• More expensive

The impact of a country's exchange rate depreciation in its current account balance is

• Negative

• Positive

What does the use of interest rates for domestic goals mean

• That the Central Bank can may use them to affect reserves of foreign currencies

• That the Central Bank may use them to affect unemployment and inflation

• That the Government may use them to spend more