Question : Which of the following is a disadvantage of a high real exchange rate?
Option 1: Increased exports.
Option 2: Increased tourism.
Option 3: Decreased competitiveness in the international market.
Option 4: Reduced inflationary pressures.
Correct Answer: Decreased competitiveness in the international market.
Solution : The correct answer is (c) Decreased competitiveness in the international market.
A high real exchange rate makes a country's goods and services relatively more expensive compared to those of other countries. This can reduce the competitiveness of domestic products in the international market, as they become relatively more expensive for foreign buyers. As a result, exports may decrease, as foreign customers may choose to purchase goods and services from countries with lower prices.
Question : A decrease in the real exchange rate implies:
Option 1: Increased competitiveness of domestic goods in the international market.
Option 2: Reduced competitiveness of domestic goods in the international market.
Option 3: Increased inflation in the domestic economy.
Option 4: Reduced inflation in the domestic economy.
Question : What is the term used to describe the rate at which a currency can be exchanged immediately in the spot market?
Option 1: Nominal exchange rate
Option 2: Real exchange rate
Option 3: Cross exchange rate
Option 4: Spot exchange rate
Question : Which of the following exchange rate systems allows the exchange rate to be determined solely by market forces of supply and demand?
Option 1: Fixed exchange rate
Option 2: Floating exchange rate
Option 3: Managed float exchange rate
Option 4: Pegged exchange rate
Question : Which of the following exchange rate systems allows the exchange rate to be freely determined by market forces but with occasional central bank intervention?
Option 1: Crawling peg exchange rate
Option 2: Fixed exchange rate
Option 3: Floating exchange rate
Option 4: Managed float exchange rate
Question : Which exchange rate is used to compare the purchasing power of different countries?
Option 1: Nominal exchange rate.
Option 2: Real exchange rate.
Option 3: Spot exchange rate.
Option 4: Forward exchange rate.
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