Question : Which of the following factors can influence the supply of a country's currency in the foreign exchange market?
Option 1: Interest rates
Option 2: Capital flows
Option 3: Trade balances
Option 4: All of the above
Correct Answer: All of the above
Solution : The correct answer is d) All of the above
All of the factors mentioned can influence the supply of a country's currency in the foreign exchange market.
a) Interest rates: Changes in interest rates can affect the attractiveness of a country's currency to foreign investors. Higher interest rates can attract capital inflows, increasing the supply of the currency, while lower interest rates may discourage capital inflows, reducing the supply.
b) Capital flows: Capital flows, including foreign direct investment, portfolio investment, and speculative flows, can impact the supply of a country's currency. Inflows of capital increase the supply, while outflows decrease the supply.
c) Trade balances: Trade balances, which refer to the difference between a country's exports and imports, can also affect the supply of its currency. A positive trade balance (exports exceeding imports) can lead to increased supply as foreign buyers of exports need to acquire the domestic currency to make payments.
Question : Which of the following factors can influence the demand for a country's currency in the foreign exchange market?
Option 2: Economic indicators
Option 3: Political stability
Question : Which of the following factors can influence foreign exchange rates in the long run?
Option 1: Speculation in the foreign exchange market
Option 2: Political events and stability
Option 3: Short-term interest rate differentials
Option 4: Currency arbitrage
Question : A country's central bank can intervene in the foreign exchange market to influence the value of its currency. This is known as ________.
Option 1: exchange rate targeting
Option 2: currency manipulation
Option 3: foreign exchange intervention
Option 4: exchange rate pegging
Question : Which of the following factors can affect the demand for a country's currency in the foreign exchange market?
Option 1: Inflation rates
Option 2: Government regulations
Option 3: GDP growth rates
Question : Appreciation and depreciation of a country's currency are primarily influenced by:
Option 1: Supply and demand dynamics in the foreign exchange market.
Option 2: Government regulations.
Option 3: International trade agreements.
Option 4: None of the above.
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