#1
What type of foreign exchange system allows the value of a currency to be determined by supply and demand?
Floating exchange rate system
ExplanationValue determined by market forces.
#2
Which organization is primarily responsible for international monetary cooperation and ensuring the stability of the foreign exchange system?
International Monetary Fund (IMF)
ExplanationEnsures stability and cooperation.
#3
What does the term 'appreciation' mean in the context of foreign exchange?
An increase in the value of a currency
ExplanationCurrency value increases.
#4
Which term describes the rate at which one currency can be exchanged for another?
Exchange rate
ExplanationRate of currency conversion.
#5
What is the primary purpose of the foreign exchange (forex) market?
To facilitate global trade and investment by enabling currency conversion
ExplanationFacilitate currency conversion for trade.
#6
Which of the following is NOT a function of the foreign exchange market?
Setting global interest rates
ExplanationNot involved in setting interest rates.
#7
In a fixed exchange rate system, how is the value of a country's currency determined?
By pegging it to another currency or basket of currencies
ExplanationValue fixed against other currencies.
#8
What does the term 'currency swap' refer to in foreign exchange markets?
A contract to exchange currency on a future date at a predetermined rate
ExplanationExchange currencies at a future date.
#9
Which of the following is a key feature of a pegged exchange rate system?
Currency value is fixed relative to another currency or basket of currencies
ExplanationValue fixed against other currencies.
#10
What impact does a devaluation of a country's currency have on its exports and imports?
Exports become cheaper and imports more expensive
ExplanationIncreases export competitiveness.
#11
What mechanism do countries under a floating exchange rate system use to influence their currency value without direct intervention in the forex market?
Interest rate adjustments
ExplanationUse interest rates to influence value.
#12
What is 'carry trade' in the context of foreign exchange?
A trade strategy that involves buying a high-interest-rate currency using a low-interest-rate currency
ExplanationProfit from interest rate differentials.
#13
How do central banks typically intervene in the foreign exchange market?
By buying or selling their own currency
ExplanationManipulate currency supply.
#14
What is a 'forward contract' in the foreign exchange market?
An agreement to exchange currencies at a future date and at a predetermined rate
ExplanationAgreement for future currency exchange.
#15
What is the effect of a central bank selling its own currency in the foreign exchange market?
It decreases the value of the currency
ExplanationReduces currency value.