CAD, CAS and Exchange rates - Balance of Payments

What is the impact of an appreciation of a country's currency on its current account?

• It leads to a current account deficit.
• It leads to a current account surplus.
• It has no impact on the current account.
• The impact depends on other economic factors.

How does a depreciation of a country's currency affect its trade balance?

• It leads to an increase in exports and a current account surplus.
• It leads to a decrease in exports and a current account deficit.
• It has no impact on trade balance.
• It reduces imports and increases the current account surplus.

In the context of exchange rates, what does a trade surplus indicate about a country's currency?

• It is likely to appreciate.
• It is likely to depreciate.
• There is no impact on the currency.
• It depends on other economic factors.

How does a fixed exchange rate system influence a country's current account?

• It tends to reduce trade imbalances.
• It leads to more flexible trade balances.
• It has no impact on trade balances.
• It tends to increase trade imbalances.

What is the relationship between interest rates and the current account?

• Higher interest rates lead to a current account surplus.
• Higher interest rates lead to a current account deficit.
• Interest rates have no impact on the current account.
• Interest rates only affect capital flows, not the current account.

How does a preference for imported luxury goods impact a country's trade balance?

• It contributes to a trade surplus.
• It contributes to a trade deficit.
• It has no impact on the trade balance.
• It depends on the overall economic conditions.

During an economic recession, what is the likely impact on a country's trade balance?

• It leads to a trade surplus.
• It leads to a trade deficit.
• Economic recessions have no impact on trade balances.
• It depends on the specific industries affected by the recession.

How do protectionist trade policies, such as tariffs, influence trade balances?

• They contribute to trade surpluses.
• They contribute to trade deficits.
• They have no impact on trade balances.
• It depends on the specific products targeted by tariffs.

In the context of deficits and surpluses, what role do consumer preferences play?

• Preferences for domestic goods contribute to a deficit.
• Preferences for foreign goods contribute to a surplus.
• Preferences have no impact on trade balances.
• Preferences influence trade balances depending on specific goods.

How does an increase in government subsidies for export industries impact a country's trade balance?

• It leads to a trade surplus.
• It leads to a trade deficit.
• Subsidies have no impact on trade balances.
• It depends on the overall economic conditions and policies.