FOREX Management Quiz

What is the primary difference between a fixed exchange rate and a flexible exchange rate?

• Flexible rates are always higher than fixed rates.

• Fixed rates are determined by market forces.

• Flexible rates are set by the government.

• Fixed rates are determined by the government.

Which of the following is a merit of a fixed exchange rate system?

• It encourages speculation.

• It ensures stability in exchange rates.

• It allows for wide fluctuations.

• It requires no foreign reserves.

What does the International Fisher Effect (IFE) suggest?

• Exchange rates are fixed by the government.

• Nominal interest rate differentials reflect expected changes in exchange rates.

• Interest rates have no impact on exchange rates.

• Inflation rates do not affect currency value.

Which factor does NOT influence exchange rates?

• Relative inflation rates

• Expectations

• Government controls

• Weather conditions

What is the primary function of arbitrage in foreign exchange markets?

• To create guaranteed profits through simultaneous buying and selling.

• To stabilize exchange rates.

• To eliminate currency speculation.

• To determine fixed exchange rates.

What does Purchasing Power Parity (PPP) relate to?

• The relationship between government controls and currency value.

• The relationship between price levels and exchange rates.

• The relationship between interest rates and exchange rates.

• The relationship between inflation rates and trade balances.

Which of the following is a demerit of a flexible exchange rate system?

• It stabilizes balance of payments.

• It encourages fluctuations in foreign exchange rates.

• It requires government intervention.

• It prevents speculation.

What is the main flaw of a fixed exchange rate system?

• It requires no government involvement.

• It automatically corrects balance of payments.

• It can lead to devaluation if reserves are exhausted.

• It allows for free market adjustments.

Which approach to forecasting exchange rates analyzes past behavior to identify patterns?

• Market-Based Approach

• Efficient Market Approach

• Fundamental Approach

• Technical Approach

What is the impact of higher interest rates on exchange rates?

• They decrease currency value.

• They attract foreign capital and increase currency value.

• They have no effect on exchange rates.

• They lead to immediate devaluation.