IBECO 4.5 - Exchange Rate Determinants

What effect does an increase in foreign demand for a country's exports have on its currency?

• Depreciation of the currency

• Appreciation of the currency

• No effect on the currency

• Decrease in foreign tourism

How does a higher rate of inflation in a country compared to others affect its exports?

• Exports become more attractive

• Exports fall as they become too expensive

• Exports remain unchanged

• Exports increase due to higher demand

What is the effect of relative growth rates on currency demand?

• No effect on currency demand

• Decrease in currency demand

• Increase in currency demand

• Currency demand becomes unpredictable

How do relative interest rate changes affect financial investments in a country?

• They make financial investments less attractive

• They have no effect on financial investments

• They make financial investments more attractive

• They cause financial investments to decrease

What is the impact of an increase in interest rates in the UK relative to other countries?

• Decrease in financial capital flows

• Increase in financial capital flows

• No change in financial capital flows

• Decrease in demand for GBP

What happens to the demand for a local currency when there is investment from abroad?

• Demand for the local currency decreases

• Demand for the local currency remains unchanged

• Demand for the local currency increases

• Demand for the local currency is unaffected

What is the effect of foreign demand for Swiss watches on the demand for francs?

• Decrease in demand for francs

• Increase in demand for francs

• No change in demand for francs

• Demand for francs becomes unpredictable

What role do foreign currency reserves play in currency demand?

• They decrease the supply of domestic currency

• They have no impact on currency demand

• They increase the supply of domestic currency in the foreign exchange market

• They decrease the demand for foreign currency

What happens to the supply curve when a central bank uses foreign currency reserves?

• It shifts to the left

• It remains unchanged

• It shifts to the right

• It becomes vertical

Which of the following is an example of inward flow remittances?

• Foreign investment in local businesses

• Increase in exports

• Money sent by expatriates to their home country

• Government borrowing from abroad