Exchange Rate and Trade Quiz

The price of the US dollar in terms of other currencies is set by the forces of demand and supply.

To what does this statement refer?

• an alternative method of trade protection

• the determination of the exchange rate in a fixed exchange rate system

• the determination of the exchange rate in a floating exchange rate system

• the increasing globalisation of international trade

What could cause the change in the exchange rate?

• a decrease in the rate of inflation in India

• an increase in demand for imports by people in India

• greater foreign direct investment into India

• greater purchases of its own currency by the Indian central bank

Country X records these selected items in the current account of its balance of payments.

• Country X exports $200m of goods.

• Country X imports $50m of services.

• Country Y’s citizens working in country X send home to relatives $25m.

• Country X sends country Y $75m of aid.

By how much did the balance on the current account of country X increase?

• $50m

• $100m

• $200m

• $350m

The diagram shows the change in the exchange rate market for country X’s $.

Which change in country X would have caused this?

• a fall in its international competitiveness

• a fall in its level of interest rates

• a rise in its exports of services

• a rise in its imports of goods

What is the most likely cause of an increased current account surplus in a country?

• lower prices for the country's exports

• higher exchange rate for the country

• economic growth in the country

• recession in trade-partner countries

In the diagram, curves D1 and S1 relate to the demand and supply of the US dollar ($) against

the Chinese yuan.

What is most likely to cause the demand curve for US dollars to shift from D1 to D2?

• a fall in Chinese interest rates

• a fall in US interest rates

• a faster growth rate in the US economy

• a reduction in the US government budget deficit

Brazil had a balance of payments current account deficit of US$23.5 billion.

Which policy is most likely to reduce the current account deficit in Brazil?

• depreciate Brazil's currency

• reduce rates of income tax in Brazil

• reduce subsidies to Brazil's exporting firms

• reduce tariffs on Brazil's imports

The diagram shows the market for the Indian rupee in US$.

What will cause the demand curve for rupees to shift from D1 to D2?

• a fall in Indian exports to the US

• a fall in the US inflation rate

• a rise in foreign direct investment into India

• a rise in interest rates in the US

The diagram shows China’s trade with Brazil for two years.

What happened to China's trade balance with Brazil between year 1 and year 2?

• It experienced a falling surplus.

• It experienced a rising deficit.

• It moved from deficit to surplus.

• It moved from surplus to deficit.

The diagram shows the foreign exchange market for the Singapore dollar (S$) in exchange for the United States dollar (US$). The initial equilibrium point is at X.

The following month, Singapore imports more goods from the US but there is no change in Singapore exports to the US.

What is the new equilibrium point?