Currency and 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 currency

• The price of goods in terms of a foreign currency

• When a nation's balance of trade is in either a surplus or deficit

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

• 1 Euro
• 0.76 Euros
• 0.63 Euros
• 0.97 Euros

What is the increase in the value of a currency? (a)  

• Exchange rate
• Recession
• Depreciation
• Appreciation

What does it mean when an economist says a currency is stronger?

• It can be exchanged for more of a lesser foreign currency

• It can be converted to prices in any currency

• There a few things it could buy

• It will buy fewer foreign goods

What is a decrease in the value of a currency? (a)  

• Appreciation
• Depreciation
• Inflation
• Absolute advantage

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

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

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

• Cheaper
• More expensive

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

• Cheaper

• More expensive