ECO 29/10

What determines the value of a currency in a floating exchange rate system?

• Government intervention
• Supply and demand in the foreign exchange market
• Central bank policy
• Fixed rate parity

When demand for a currency increases, the currency will:

• Depreciate
• Devalue
• Appreciate
• Stay constant

When foreign demand for exports increases, what happens to the domestic currency?

• Depreciates
• Appreciates
• Devalues
• Weakens

When domestic demand for imports increases, the domestic currency will:

• Appreciate
• Depreciate
• Revalue
• Strengthen

Inward foreign direct investment (FDI) causes:

• Currency depreciation
• Currency appreciation
• Devaluation
• Increased imports

Outward FDI leads to:

• An appreciation of the domestic currency
• A depreciation of the domestic currency
• An increase in export prices
• Reduced capital inflows

What does inward portfolio investment cause?

• Depreciation of foreign currency, appreciation of domestic currency
• Depreciation of domestic currency
• No effect on exchange rate
• Fall in exports

Outward portfolio investment results in:

• Appreciation of domestic currency
• Depreciation of domestic currency
• No change in value
• Revaluation of foreign currency

When workers send remittances home, the home country’s currency will:

• Depreciate
• Appreciate
• Stay the same
• Devalue

Speculators expecting a currency to rise in value will:

• Sell the currency
• Buy the currency
• Avoid the currency
• Short the currency