Exchange Rate and Currency Questions

What is a bilateral exchange rate?

• Exchange rate between two currencies

• Exchange rate using a third currency

• Weighted basket of trade currencies

• Fixed exchange rate

What happens when the AUD appreciates?

• A) Exports become cheaper

• B) Imports become more expensive

• C) Exports become more expensive

• D) Trade Weighted Index rises

What is the main benefit of a floating exchange rate?

• A) Government stability

• B) Fixed currency value

• C) Market-determined price

• D) Lower inflation

What does the Trade Weighted Index (TWI) measure?

• The strength of AUD against USD

• AUD against a weighted basket of currencies

• Interest rate differentials

• Inflation rates

What is "dirtying the float"?

• Government fully controlling exchange rates

• The RBA intervening in forex markets

• Speculators manipulating exchange rates

• A sudden crash in currency value

Which factor increases demand for AUD?

• Lower Australian interest rates

• Higher commodity prices

• Decreasing foreign investment

• Rising imports

What is the J-Curve effect?

• Exports immediately rise after depreciation

• Trade balance worsens before improving after depreciation

• Appreciation leads to better trade balance

• The currency follows a fixed growth path

What happens when imports exceed exports?

• A) Exchange rate appreciates

• B) Current account deficit increases

• C) AUD becomes stronger

• D) Trade balance improves

What is the main disadvantage of a floating exchange rate?

• A) Government interference

• B) Less monetary policy control

• C) Increased volatility

• D) Fixed capital movement

What happens when foreign investment increases in Australia?

• AUD supply increases

• AUD demand increases

• Exports decrease

• Imports increase