Question : A country with a trade deficit is likely to experience ________ pressure on its currency.
Option 1: upward
Option 2: downward
Option 3: no
Option 4: mixed
Correct Answer: downward
Solution : The correct answer is (b) downward.
A trade deficit occurs when a country's imports exceed its exports, meaning that it is buying more goods and services from foreign countries than it is selling to them. This creates a demand for foreign currency to pay for the imports, which puts pressure on the country's own currency. As a result, the value of the country's currency is likely to decrease, or depreciate, relative to other currencies.
The downward pressure on the currency is a result of the imbalance in trade, as the country needs to exchange more of its currency to acquire the foreign currency needed for imports. This depreciation can help make the country's exports relatively cheaper, potentially improving the trade balance over time.
Question : A country with a trade surplus is likely to experience:
Option 1: Appreciation of its currency
Option 2: Depreciation of its currency
Option 3: No impact on its currency
Option 4: A fixed exchange rate
Question : If aggregate supply exceeds aggregate demand, the economy is likely to experience:
Option 1: Inflationary pressure
Option 2: Deflationary pressure
Option 3: Recessionary pressure
Option 4: Stagflation
Question : What is the term used to describe the practice of a country manipulating its currency to gain an unfair trade advantage?
Option 1: Currency hedging
Option 2: Currency speculation
Option 3: Currency pegging
Option 4: Currency manipulation
Question : A decrease in a country's exports is likely to result in:
Question : What is the term used to describe a situation where a country's central bank fixes the value of its currency to another currency at a specified exchange rate?
Option 1: Currency intervention
Option 2: Currency hedging
Option 3: Currency manipulation
Option 4: Currency pegging
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