#1
What is the primary goal of a country's central bank?
Minimizing inflation
ExplanationMaintaining price stability by controlling inflation.
#2
Which of the following is a floating exchange rate regime?
Managed float
ExplanationA system where exchange rates are determined by market forces with occasional intervention by the central bank.
#3
What is the term used to describe a situation where a country's imports exceed its exports?
Trade deficit
ExplanationWhen a nation spends more on imported goods and services than it earns through exports.
#4
Which of the following is a factor that can affect the demand for a currency in the foreign exchange market?
All of the above
ExplanationVarious economic, political, and psychological factors influencing currency demand.
#5
In the context of exchange rates, what does 'appreciation' mean?
An increase in the value of a currency relative to other currencies
ExplanationThe strengthening of a currency's value in comparison to other currencies.
#6
The purchasing power parity theory suggests that exchange rates adjust to:
Inflation differentials
ExplanationChanges in the relative price levels of two countries' currencies.
#7
Which international organization acts as a lender of last resort for countries facing balance of payments problems?
International Monetary Fund (IMF)
ExplanationProviding financial assistance to countries experiencing currency crises or economic imbalances.
#8
The Big Mac Index is used to measure:
Purchasing power parity
ExplanationComparing the purchasing power of different currencies through the price of a Big Mac.
#9
Which of the following is not a determinant of exchange rates in the long run?
Interest rates
ExplanationLong-term exchange rates are influenced by factors like productivity, economic growth, and political stability.
#10
What is the difference between nominal exchange rates and real exchange rates?
Real exchange rates are adjusted for inflation, while nominal exchange rates are not.
ExplanationReal exchange rates consider the purchasing power of currencies after adjusting for inflation, while nominal exchange rates don't.
#11
Under the theory of uncovered interest rate parity, if the interest rate in one country increases relative to another, what should happen to the exchange rate?
It should appreciate
ExplanationInvestors will demand higher returns, leading to an increase in the value of the currency.
#12
What is a 'currency peg'?
An exchange rate regime where the value of a currency is fixed to another currency or a basket of currencies
ExplanationMaintaining a stable exchange rate by linking a currency's value to another currency or a basket of currencies.
#13
What is a 'carry trade'?
A trade where investors borrow in a currency with a low interest rate and invest in a currency with a high interest rate
ExplanationProfiting from the interest rate differential between two currencies by borrowing in a low-interest-rate currency and investing in a higher-yielding one.