A-Level Econ Chapter 4 Exchange Rates

The J-curve effect illustrates..

• a strengthening in the exchange rate causing an increase in a current account deficit before it reduces it due to the time it takes for demand to respond.

• a fall in the exchange rate causing an increase in a current account deficit, before it reduces it due to the time it takes for demand to respond.

Appreciation refers to

• an decrease in the international price of a currency caused by market forces.

• an increase in the international price of a currency caused by international forces.

• an increase in the international price of a currency caused by market forces.

Trade weighted exchange rate refers to...

• the price of one currency against a basket of currencies.

• the demand of one currency against a basket of currencies.

• the supply of one currency against a basket of currencies.

Hot money flows refers to....

• flows of money moved around the world to take advantage of changes in tax rates and exchange rates.

• flows of money moved around the world to take advantage of changes in interest rates and exchange rates.

• flows of money moved around the world to take advantage of changes in interest rates.

A decision by the government to raise the international price of its currency is known as....

• Devaluation

• Resolution

• Revaluation

A Managed float is

• an exchange rate set by the government and

• an exchange rate that is determined by the market forces of demand and supply

• where the exchange rate is influenced by state intervention.

What is one way in which the government intervene to manage the value of its currency in the foreign exchange market.

• Implement a revaluation

• Manipulate interest rates

• Implement a devaluation

Real effective exchange rate refers to...

• a currency’s value in terms of its real purchasing power.

• a currency’s value adjusted for inflation rates

• a currency’s value in terms of its real purchasing power.

Marshall-Lerner condition states that...

• to reduce a current account deficit, the sum of the price elasticities of demand for exports and imports must be 0

• to reduce a current account deficit, the sum of the price elasticities of demand for exports and imports must be less than 1

• to reduce a current account deficit, the sum of the price elasticities of demand for exports and imports must be greater than 1