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
Correct Answer: Appreciation of its currency
Solution : The correct answer is a) Appreciation of its currency
When a country has a trade surplus, it means that the value of its exports exceeds the value of its imports. This results in a net inflow of foreign currency into the country. To balance this surplus, the country's currency is in greater demand, causing its value to appreciate relative to other currencies. The increased demand for the country's currency is driven by foreign entities needing to exchange their currency for the country's currency to pay for its exports. Therefore, a trade surplus often leads to the appreciation of the country's currency.
Question : A decrease in a country's exports is likely to result in:
Question : A decrease in interest rates in a country is likely to result in:
Option 1: Appreciation of the domestic currency
Option 2: Depreciation of the domestic currency
Option 3: No impact on the exchange rate
Option 4: Unpredictable fluctuations in the exchange rate
Question : Depreciation and appreciation are the part of which exchange rate system?
Option 1: Fixed exchange rate system
Option 2: Flexible exchange rate system
Option 3: Managed floating rate system
Option 4: None of the above.
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
Question : Which of the following is not a fixed exchange rate system?
Option 1: Floating exchange rate
Option 2: Pegged exchange rate
Option 3: Managed float exchange rate
Option 4: Currency board arrangement
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile