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International Economics II: Forex Market Quiz
32 Questions
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International Economics II: Forex Market Quiz

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Questions and Answers

Which term refers to the increase in the value of a currency in a fixed exchange rate regime?

  • Depreciation
  • Revaluation (correct)
  • Managed float
  • Arbitrage

    • What is the main function of the Foreign Exchange Market?

  • To facilitate international currency trades (correct)
  • To provide loans to international businesses
  • To control the stock market fluctuations
  • To regulate the exchange rate of a single currency

    • What does the demand for foreign exchange depend on?

  • The amount of gold reserves held by the central bank
  • The unemployment rate in the domestic country
  • Interest rates in the domestic country and abroad (correct)
  • The level of GDP in the domestic country

    • Who are the participants in the Foreign Exchange Market?

    <p>Hedgers, arbitrageurs, and speculators</p> Signup and view all the answers

    What is a freely floating / flexible exchange rate regime?

    <p>A regime where the exchange rate is determined purely by market forces</p> Signup and view all the answers

    What is the main characteristic of a managed float / hybrid exchange rate regime?

    <p>The central bank intervenes to influence the exchange rate</p> Signup and view all the answers

    What is the price of one dollar in terms of Ethiopian Birr?

    <p>53.80/$</p> Signup and view all the answers

    Why do we need to exchange one currency for another?

    <p>To equalize the price of goods and services produced in different countries</p> Signup and view all the answers

    If a dollar is worth 120 yen, how much does a US car costing $10k convert to in yen?

    <p>1.2 mln yen</p> Signup and view all the answers

    How is the exchange rate defined in terms of domestic and foreign currency units?

    <p>$0.019/1 birr and 53.80/$</p> Signup and view all the answers

    Who are the major players in the forex market?

    <p>Commercial banks, corporations, and nonbank financial institutions</p> Signup and view all the answers

    In international trade, why do exchange rates play a central role?

    <p>To facilitate comparison of prices of goods and services from different countries</p> Signup and view all the answers

    What is the role of central banks in the forex market?

    <p>To intervene in foreign exchange markets and hold forex reserves</p> Signup and view all the answers

    How do corporations with operations in several countries use forex?

    <p>To make or receive payments in currencies other than that of their headquarters</p> Signup and view all the answers

    What is the most common type of foreign exchange transactions?

    <p>Exchange of bank deposits denominated in different currencies</p> Signup and view all the answers

    What is the significance of expressing exchange rates in different ways?

    <p>It helps in understanding the rise/fall of the value of a currency</p> Signup and view all the answers

    The foreign exchange market is where international currency trades take place.

    <p>True</p> Signup and view all the answers

    In international transactions, people need to sell one currency and buy another.

    <p>True</p> Signup and view all the answers

    The foreign exchange rate is the price of one currency in terms of another currency.

    <p>True</p> Signup and view all the answers

    A freely floating / flexible exchange rate regime is a system where the exchange rate is allowed to fluctuate according to the foreign exchange market forces.

    <p>True</p> Signup and view all the answers

    The demand for and the supply of foreign exchange depend on various factors such as interest rates, inflation, and political stability.

    <p>True</p> Signup and view all the answers

    Arbitrageurs, hedgers, and speculators play a role in the interaction within the foreign exchange market.

    <p>True</p> Signup and view all the answers

    Exchange rate can be expressed in terms of domestic currency units per unit of foreign currency and foreign currency units per unit of domestic currency.

    <p>True</p> Signup and view all the answers

    An Ethiopian importer must sell birr and purchase dollars to buy American goods.

    <p>True</p> Signup and view all the answers

    Exchange rates play a central role in international trade because they allow us to compare the prices of goods and services produced in different countries.

    <p>True</p> Signup and view all the answers

    If a dollar is worth 120 yen, the US car costing $10k converts to 1.2 mln yen.

    <p>True</p> Signup and view all the answers

    Central banks sometimes intervene in foreign exchange markets and hold forex reserves that can affect the supply of and demand for currency.

    <p>True</p> Signup and view all the answers

    Corporations with operations in several countries frequently make or receive payments in currencies other than that of their headquarters.

    <p>True</p> Signup and view all the answers

    The most common participants in foreign exchange transactions are individual retail investors.

    <p>False</p> Signup and view all the answers

    When expressing an exchange rate in terms of foreign currency units per unit of domestic currency, the exchange rate is written as $0.019/1 birr.

    <p>True</p> Signup and view all the answers

    Foreign exchange rates are only important for domestic trade and have no impact on international trade.

    <p>False</p> Signup and view all the answers

    If a currency's value increases in a fixed exchange rate regime, it is known as devaluation.

    <p>False</p> Signup and view all the answers

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