A-Level - Exchange Rates

A Chinese firm buys copper from Chile.

What effect will this transaction have on the foreign exchange market?

• A

• B

• C

• D

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.

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

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

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.