Exchange Rate Quiz

What is an exchange rate?

What is an effective exchange rate?

What are the main exchange rate systems?

Which of the following describes a free-floating currency?

• The external value of a currency depends wholly on market forces of supply and demand – there is no central bank intervention.

• The central bank may choose to intervene in the foreign exchange markets to affect the value of a currency to meet specific macroeconomic objectives.

• A hard currency peg either as part of a currency board system or membership of the ERM Mark II for those EU countries eventually intending to join the Euro.

Which of the following describes a managed-floating currency?

• The external value of a currency depends wholly on market forces of supply and demand – there is no central bank intervention.

• The central bank may choose to intervene in the foreign exchange markets to affect the value of a currency to meet specific macroeconomic objectives.

• A hard currency peg either as part of a currency board system or membership of the ERM Mark II for those EU countries eventually intending to join the Euro.

Which of the following describes a fixed exchange rate system?

• The external value of a currency depends wholly on market forces of supply and demand – there is no central bank intervention.

• The central bank may choose to intervene in the foreign exchange markets to affect the value of a currency to meet specific macroeconomic objectives.

• A hard currency peg either as part of a currency board system or membership of the ERM Mark II for those EU countries eventually intending to join the Euro.

What is depreciation in terms of exchange rates?

• A fall in the value of a currency in a floating exchange rate system.

• A fall in the value of a currency in a fixed exchange rate system.

• A rise in the value of a currency in a floating exchange rate system.

• A rise in the value of a currency in a fixed exchange rate system.

What is devaluation in terms of exchange rates?

• A fall in the value of a currency in a floating exchange rate system.

• A fall in the value of a currency in a fixed exchange rate system.

• A rise in the value of a currency in a floating exchange rate system.

• A rise in the value of a currency in a fixed exchange rate system.

What is appreciation in terms of exchange rates?

• A fall in the value of a currency in a floating exchange rate system.

• A fall in the value of a currency in a fixed exchange rate system.

• A rise in the value of a currency in a floating exchange rate system.

• A rise in the value of a currency in a fixed exchange rate system.

List four ways exchange rates impact business activity.