Factors Affecting Exchange Rates

What happens to the value of a currency when there is an increase in demand for it?

• The value fluctuates randomly

• The value decreases

• The value remains the same

• The value increases

How do central banks stabilize their domestic currency?

• By reducing interest rates

• By buying foreign and selling domestic currency

• By increasing taxes

• By printing more money

What is the effect of high inflation on the value of a currency?

• It increases the value

• It has no effect

• It decreases the value

• It makes the value unpredictable

What happens to the demand for a currency when interest rates rise?

• Demand remains the same

• Demand decreases

• Demand becomes volatile

• Demand increases

How does a trade deficit affect the value of a country's currency?

• It increases the value

• It has no effect

• It stabilizes the value

• It decreases the value

What is a likely consequence of a country having a large public debt?

• Increased currency value

• Stable currency value

• High inflation and potential default

• Decreased interest rates

What do traders do when they expect a currency to fall?

• Buy more of the currency

• Hold onto the currency

• Sell the currency

• Invest in the stock market

What should you keep an eye on to get the best deals in forex transactions?

• The commodity market

• The currency market

• The real estate market

• The stock market