30 Questions
What is one advantage of an appreciating Ethiopian Birr mentioned in the text?
Imported goods become more affordable
Which factor is a disadvantage of a depreciating Ethiopian Birr according to the text?
Increased prices on imports
How does an appreciating Ethiopian Birr impact foreign travel?
It makes foreign travel more expensive for tourists
What does the cross exchange rate measure?
The exchange rate between any pair of currencies
In the context of the text, what is the broad meaning of foreign exchange?
The mechanism of foreign payments and currency conversion
What is a con associated with an appreciating Ethiopian Birr?
Exporters' products become more expensive abroad
What is the primary function of the foreign exchange market according to the text?
Transfer purchasing power from one country to another
What is the real effective exchange rate (REER) a measure of?
The value of a currency against several foreign currencies
Which entity is not mentioned as a participant in the foreign exchange market in the text?
Hedge Funds
What does an increase in the real effective exchange rate (REER) imply?
Exports become more expensive and imports become cheaper
What is the purpose of hedging facilities in the foreign exchange market?
Covering foreign trade risks
In the context of comparing the prices of American and Japanese cars, what does it mean when it is mentioned that 'the American car costs one-half of what the Japanese car costs'?
The American car is half the price of the Japanese car
How does a nation's demand for foreign exchange change with the depreciation of its currency?
Demand for foreign exchange increases
How does an increase in the real effective exchange rate (REER) impact a nation's trade competitiveness?
Decreases trade competitiveness
Which sector benefits from the provision of credit in the foreign exchange market?
Exporters
In the context of foreign exchange, what is the primary objective of a speculator?
To speculate on favorable currency rate changes
If a speculator believes that a particular foreign currency will rise in value, what action could they take according to the text?
Purchase the currency now and hold it for resale later
What is the main factor driving the demand for foreign exchange according to the text?
'Debit items' on a nation's balance of payments
What happens to the dollar when the price level in Ethiopia increases?
Appreciates
How do interest rate increases in Ethiopia affect the dollar?
Depreciates
What happens to the birr when interest rates in the US increase?
Depreciates
What does a real effective exchange rate (REER) divided by a price deflator measure?
Value of a currency against several foreign currencies
What occurs to the dollar when Americans increase their demand for Ethiopian coffee?
Depreciates
At current prices and exchange rates, how many American cars can be exchanged for one Japanese car?
2 American cars for 1 Japanese car
What is the main purpose of hedging in the context of foreign exchange?
To reduce or cover the risk of unfavorable currency rate changes
How does speculation differ from hedging in the foreign exchange market?
Speculators take positions on favorable currency rate changes, while hedgers seek to cover risk.
What would be the likely outcome if traders and investors did not engage in hedging according to the text?
Smaller benefits from trade
How does an increase in Ethiopia’s real GDP impact the dollar?
Appreciates
What characterizes the Flexible (Floating) Exchange Rate System?
Given by private demand and supply interaction
How does a speculative position differ from a hedged position in the foreign exchange market?
Speculation involves seeking out foreign exchange risks, while hedging seeks to reduce or cover risks.
This quiz explores the concept of exchange rate by comparing the prices of American and Japanese cars. It involves converting prices from one currency to another to determine the cost in a common currency. The example provided illustrates how exchange rates impact the prices of goods in different countries.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
