#1
In a pegged exchange rate system, what does it mean if a country's currency is 'overvalued'?
The currency's value is too high compared to its market value
ExplanationCurrency value higher than market value.
#2
What is the role of a currency board in the context of exchange rate systems?
Maintaining a fixed exchange rate by holding foreign reserves
ExplanationCurrency board maintains fixed rate via reserves.
#3
Which international organization aims to promote monetary cooperation and exchange rate stability among its member countries?
International Monetary Fund (IMF)
ExplanationIMF promotes monetary cooperation and stability.
#4
In the context of exchange rate systems, what does a 'currency peg' refer to?
The practice of tying a country's currency to another major currency.
ExplanationTying currency to another major currency.
#5
In a floating exchange rate system, what primarily determines the value of a currency?
Market forces of supply and demand.
ExplanationCurrency value determined by supply and demand.
#6
Which of the following exchange rate systems allows the currency value to be determined by market forces without government intervention?
Floating Exchange Rate System
ExplanationCurrency value determined by market forces.
#7
In a fixed exchange rate system, how is the currency value maintained?
By government intervention in the foreign exchange market
ExplanationCurrency value maintained by government intervention.
#8
What is the primary goal of a central bank in managing exchange rates?
Maintaining price stability and economic growth
ExplanationCentral bank aims for price stability and growth.
#9
In a managed float exchange rate system, how does a government intervene to influence its currency's value?
By directly buying or selling its currency in the foreign exchange market
ExplanationGovernment buys/sells currency to influence value.
#10
What is the primary difference between a fixed exchange rate and a pegged exchange rate?
In a fixed exchange rate, the currency value is determined by market forces, while in a pegged exchange rate, it is fixed by the government.
ExplanationFixed rate set by market vs. government in pegged rate.
#11
What is the term for the risk that changes in exchange rates may negatively impact the value of international investments?
Exchange risk
ExplanationRisk of exchange rate changes affecting investments.
#12
What is a currency crisis in the context of exchange rates?
A situation where a currency rapidly loses its value, leading to financial instability.
ExplanationRapid currency devaluation causing financial instability.
#13
What is a 'dirty float' in the context of exchange rates?
A managed float exchange rate system with occasional government interventions
ExplanationManaged float system with sporadic government interventions.
#14
What role does the International Monetary Fund (IMF) play in the management of exchange rates?
Providing financial assistance to countries facing balance of payments problems
ExplanationIMF provides financial aid for balance of payments issues.
#15
What is the term for a situation where a country devalues its currency intentionally to boost exports?
Competitive devaluation
ExplanationIntentional currency devaluation for export advantage.
#16
How do interest rates affect exchange rates in the short term?
Higher interest rates lead to currency appreciation
ExplanationHigher rates result in currency appreciation.
#17
In the context of exchange rates, what is the meaning of the term 'currency appreciation'?
The currency's value increases relative to other currencies.
ExplanationCurrency's value rises compared to others.
#18
What is the purpose of the foreign exchange market?
To provide a platform for trading and exchanging currencies.
ExplanationPlatform for currency trading and exchange.
#19
What is the concept of 'currency intervention' in the foreign exchange market?
Government actions to influence the exchange rate by buying or selling its currency.
ExplanationGovernment influence on exchange rate via currency transactions.