Pop Quiz: Exchange Rates

What does an exchange rate measure?

• The value of goods in a country

• The price of one currency in terms of another currency

• The inflation rate of a country

• The interest rate set by the central bank

If the Malaysian Ringgit (MYR) appreciates against the US Dollar (USD), which of the following will likely happen?

• Malaysian exports become cheaper for US buyers

• Malaysian imports from the US become more expensive

• Malaysians need fewer Ringgit to buy US Dollars

• Malaysian businesses earn more from exports

Which of the following factors can cause a currency to depreciate?

• Higher inflation in the country

• Increase in foreign investment

• Higher demand for the currency

• Government limiting money supply

What happens when a country has higher interest rates compared to other countries?

• Investors move their money out of the country

• The currency strengthens due to higher foreign investment

• Imports become cheaper

• Inflation decreases immediately

What is the carry trade strategy in foreign exchange markets?

• Buying a currency and immediately selling it for profit

• Borrowing in a low-interest currency and investing in a high-interest currency

• Holding cash and waiting for exchange rates to fluctuate

• Using currency for buying and selling goods internationally

When the value of a country’s currency decreases relative to another currency, this is called:

• Inflation

• Depreciation

• Appreciation

• Interest rate effect

If demand for the Malaysian Ringgit (MYR) increases, what will happen to its value?

• The Ringgit will depreciate

• The Ringgit will appreciate

• The exchange rate will remain unchanged

• The central bank will stop its trading

Which of the following is not a factor that affects exchange rates?

• Inflation rates

• Interest rates

• Foreign demand for goods

• The country’s population size

When foreign investors expect high inflation in a country, they will most likely:

• Invest more in that country

• Sell that country’s currency

• Buy that country’s currency

• Stop trading in the foreign exchange market

Which government action can help strengthen a country’s currency?

• Increasing interest rates

• Printing more money

• Reducing foreign trade barriers

• Encouraging more imports