Exchange Rate and Price Comparison Quiz

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What is one advantage of an appreciating Ethiopian Birr mentioned in the text?

Travel abroad becomes cheaper

Imported goods become more affordable (correct)

Exporters can sell abroad more easily

Local inflation rates rise

Which factor is a disadvantage of a depreciating Ethiopian Birr according to the text?

Increased prices on imports (correct)

Promotion of foreign tourism

Exporters face less competition from imports

Travel abroad becomes cheaper

How does an appreciating Ethiopian Birr impact foreign travel?

It has no impact on foreign travel

It makes foreign travel more expensive for tourists (correct)

It reduces the cost of foreign travel for locals

It encourages foreign tourists to visit Ethiopia

What does the cross exchange rate measure?

The exchange rate between any pair of currencies Signup and view all the answers

In the context of the text, what is the broad meaning of foreign exchange?

The mechanism of foreign payments and currency conversion Signup and view all the answers

What is a con associated with an appreciating Ethiopian Birr?

Exporters' products become more expensive abroad Signup and view all the answers

What is the primary function of the foreign exchange market according to the text?

Transfer purchasing power from one country to another Signup and view all the answers

What is the real effective exchange rate (REER) a measure of?

The value of a currency against several foreign currencies Signup and view all the answers

Which entity is not mentioned as a participant in the foreign exchange market in the text?

Hedge Funds Signup and view all the answers

What does an increase in the real effective exchange rate (REER) imply?

Exports become more expensive and imports become cheaper Signup and view all the answers

What is the purpose of hedging facilities in the foreign exchange market?

Covering foreign trade risks Signup and view all the answers

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 Signup and view all the answers

How does a nation's demand for foreign exchange change with the depreciation of its currency?

Demand for foreign exchange increases Signup and view all the answers

How does an increase in the real effective exchange rate (REER) impact a nation's trade competitiveness?

Decreases trade competitiveness Signup and view all the answers

Which sector benefits from the provision of credit in the foreign exchange market?

Exporters Signup and view all the answers

In the context of foreign exchange, what is the primary objective of a speculator?

To speculate on favorable currency rate changes Signup and view all the answers

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 Signup and view all the answers

What is the main factor driving the demand for foreign exchange according to the text?

'Debit items' on a nation's balance of payments Signup and view all the answers

What happens to the dollar when the price level in Ethiopia increases?

Appreciates Signup and view all the answers

How do interest rate increases in Ethiopia affect the dollar?

Depreciates Signup and view all the answers

What happens to the birr when interest rates in the US increase?

Depreciates Signup and view all the answers

What does a real effective exchange rate (REER) divided by a price deflator measure?

Value of a currency against several foreign currencies Signup and view all the answers

What occurs to the dollar when Americans increase their demand for Ethiopian coffee?

Depreciates Signup and view all the answers

At current prices and exchange rates, how many American cars can be exchanged for one Japanese car?

2 American cars for 1 Japanese car Signup and view all the answers

What is the main purpose of hedging in the context of foreign exchange?

To reduce or cover the risk of unfavorable currency rate changes Signup and view all the answers

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. Signup and view all the answers

What would be the likely outcome if traders and investors did not engage in hedging according to the text?

Smaller benefits from trade Signup and view all the answers

How does an increase in Ethiopia’s real GDP impact the dollar?

Appreciates Signup and view all the answers

What characterizes the Flexible (Floating) Exchange Rate System?

Given by private demand and supply interaction Signup and view all the answers

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. Signup and view all the answers

Exchange Rate and Price Comparison Quiz

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Questions and Answers

What is one advantage of an appreciating Ethiopian Birr mentioned in the text?

Which factor is a disadvantage of a depreciating Ethiopian Birr according to the text?

How does an appreciating Ethiopian Birr impact foreign travel?

What does the cross exchange rate measure?

In the context of the text, what is the broad meaning of foreign exchange?

What is a con associated with an appreciating Ethiopian Birr?

What is the primary function of the foreign exchange market according to the text?

What is the real effective exchange rate (REER) a measure of?

Which entity is not mentioned as a participant in the foreign exchange market in the text?

What does an increase in the real effective exchange rate (REER) imply?

What is the purpose of hedging facilities in the foreign exchange market?

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'?

How does a nation's demand for foreign exchange change with the depreciation of its currency?

How does an increase in the real effective exchange rate (REER) impact a nation's trade competitiveness?

Which sector benefits from the provision of credit in the foreign exchange market?

In the context of foreign exchange, what is the primary objective of a speculator?

If a speculator believes that a particular foreign currency will rise in value, what action could they take according to the text?

What is the main factor driving the demand for foreign exchange according to the text?

What happens to the dollar when the price level in Ethiopia increases?

How do interest rate increases in Ethiopia affect the dollar?

What happens to the birr when interest rates in the US increase?

What does a real effective exchange rate (REER) divided by a price deflator measure?

What occurs to the dollar when Americans increase their demand for Ethiopian coffee?

At current prices and exchange rates, how many American cars can be exchanged for one Japanese car?

What is the main purpose of hedging in the context of foreign exchange?

How does speculation differ from hedging in the foreign exchange market?

What would be the likely outcome if traders and investors did not engage in hedging according to the text?

How does an increase in Ethiopia’s real GDP impact the dollar?

What characterizes the Flexible (Floating) Exchange Rate System?

How does a speculative position differ from a hedged position in the foreign exchange market?

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