Exchange rate

1 A Chinese firm buys copper from Chile. What effect will this transaction have on the foreign exchange market?

• A

• B

• C

• D

2 A country’s exchange rate is initially 20 rupees = $1. Its firms sell a product in the USA for $20. Its domestic price stays the same, but the exchange rate changes to 25 rupees = $1. How much will the product now sell for in the USA?

• A $16

• B $18

• C $24

• D $25

3 There is a fall in Norway’s exchange rate from 10 krona = US$1 to 15 krona = US$1. What must occur as a result of this change?

• A Norwegian krona will become cheaper in terms of dollars.

• B The price level will fall in Norway.

• C The US dollar will be undervalued.

• D US imports from Norway will rise in price.

4 The diagram shows the exchange rate for Egyptian pounds in terms of dollars. The initial equilibrium is at X. What will be the new equilibrium position if Egypt experiences a higher inflation rate than the USA and if more Egyptians visit the USA as tourists?

• A

• B

• C

• D

5 The diagram shows the demand for and supply of dollars on the foreign exchange market. D and S are the initial demand and supply curves of the dollar ($). Which change would cause the demand curve to shift to D1 and the supply curve to S1?

• A a decrease in Japanese tariffs on US imports

• B a decrease in US interest rates

• C an increase in Japanese incomes

• D an increase in the quality of US products

6 A country experiences an appreciation of its floating exchange rate. Which combination of changes to the components of the current account of the balance of payments would have caused this?

• A

• B

• C

• D

7 The price of a country’s imports decreases and its trade in goods and services deficit decreases. What could explain this?

• A export revenue decreases

• B the net inflow of profit increases

• C the price elasticity of demand for imports is inelastic

• D workers’ remittances out of the country decrease

8 Country X and Country Y have floating exchange rates. What would cause Country X to have to pay more for Country Y’s currency?

• A Country X’s citizens switch their purchases from Country Y’s products to products produced at home.

• B Country X’s firms spend less on machinery from Country Y.

• C Country Y’s citizens pay more interest on loans from Country X’s banks.

• D Country Y’s workers earn more in Country X.

9 When would a government welcome an appreciation in its country’s currency?

• A The country has a current account deficit.

• B The country has a high inflation rate.

• C The country has a high unemployment rate.

• D The country is experiencing a recession.

10 What is a likely consequence of a fall in the international price of the Canadian dollar?

• A a fall in Canada’s price level

• B a fall in the foreign currency price of Canada’s exports

• C a rise in cyclical unemployment in Canada

• D a rise in the deficit on the current account of Canada’s balance of payments