Exploring Foreign Exchange Markets and Exchange Rates

What determines the exchange rate of a currency?

• The country's export volume

• The country's interest rate policy

• Supply and demand in the market

• The country's GDP

What happens when a currency appreciates?

• It benefits importers and hurts exporters

• It benefits exporters and hurts importers

• It has no effect on the economy

• It decreases the country's GDP

What is the result of a currency depreciation?

• It decreases the country's export volume

• It benefits exporters and hurts importers

• It benefits importers and hurts exporters

• It increases the country's GDP

Which factor increases the demand for a country's currency?

• A decrease in the country's price levels

• A decrease in the country's interest rates

• A recession in foreign economies

• An increase in foreign preference for the country's goods

Which of the following would cause an increase in demand for U.S. dollars?

• A decrease in U.S. interest rates

• An increase in foreign interest rates

• An increase in foreign demand for U.S. goods

• A recession in the U.S.

What effect does an increase in domestic interest rates have on the foreign exchange market?

• Decreases the supply of the domestic currency

• Increases the demand for foreign currencies

• Decreases the demand for the domestic currency

• Increases the supply of foreign currencies

What happens when there is an increase in the supply of a currency?

• The currency depreciates

• The currency appreciates

• The demand for the currency increases

• The GDP of the country increases

What role do interest rates play in the foreign exchange market?

• They determine the GDP of a country

• They influence the supply and demand for a currency

• They have no impact on exchange rates

• They solely determine the price level of goods

How does an increase in a country's price level affect its currency in the foreign exchange market?

• Has no effect on the currency value

• Increases the demand for the currency

• Leads to currency depreciation

• Leads to currency appreciation

How does a decrease in national income affect a country's currency in the foreign exchange market?

• Leads to currency appreciation

• Leads to currency depreciation

• Increases the supply of the currency

• Decreases the demand for the currency