Practise interpreting exchange rate measures, fixed and managed systems, devaluation terms, capital flows and J-curve effects.
At present, one unit of a country's currency exchanges for US $ 1.2. The country aims to set its exchange rate equal to US$1.0.
Which combination of government actions in the foreign exchange market must achieve this aim?
buying US currency and buying its own currency
buying US currency and selling its own currency
selling US currency and buying its own currency
selling US currency and selling its own currency
What is a trade-weighted exchange rate?
the price of one currency against a basket of other currencies
the price of one currency in terms of another
the price of one currency in terms of its real purchasing power
the price of one currency being determined by state intervention
A central bank officially lowers the price of its currency relative to an agreed rate in terms of other currencies.
What type of central bank policy is this?
appreciation
depreciation
devaluation
revaluation
A country with fixed exchange rates faces a surplus on its current account.
Which policy is most desirable to maintain the fixed exchange rate?
an increase in subsidies given to exporters
the imposition of trade barriers on the import of non-essential goods
the sale of foreign currencies in the foreign exchange market
the use of expansionary monetary policy
An economy has a large surplus on the current account of its balance of payments. It revalues its currency. The current account of the balance of payments becomes a greater surplus in the short run. In the long run the surplus becomes smaller and eventually becomes a deficit.
What is the sum of the price elasticities of imports and exports in the short run and in the long run?
short run
long run
greater than 1.0
greater than 1.0
greater than 1.0
less than 1.0
less than 1.0
greater than 1.0
less than 1.0
less than 1.0
