IB Economics MCQ Revision Pack 4.5 Exchange rates 1. What is an exchange rate? A. The difference in the selling price of the same good in two different countries B. The price of a country’s currency expressed in terms of another C. The price of a currency as benchmarked against gold for international comparisons D. The rate at which average price levels in a country rise s over time 2 Wh ich foreign exchange rate system exists when exchange rate s are determined onl y through the forces of demand and supply? A. Fixed B. Floating C. Managed D. Pegged 3 How is the exchange rate determined under a fixed exchange rate system? A. Open market operations B. Reserves of f oreign exchange held by the central bank C. The demand for and supply of different currencies D. The price of the currency against the market value of gold 4 If the demand for a country’s exports rises, its currency is likely to _______ , ceteris paribus. A. Cause currency speculation B. Decrease in value C. Increase in value D. Remain the same 5 In general, w hen the demand for a currency _______, or the supply of a currency _______, the currency depreciates in value A. Falls, decreases B. Falls , increases C. Rises , decreases D. Risess , increases © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 314 IB Economics MCQ Revision Pack 4.5 Exchange rates 6 The ________ the demand for imports, the ________ the exchange rate A. Higher, higher B. Higher, lower C. Lower, higher D. Lower, lower 7 The higher the level of foreign direct investment (FDI) , the ________ the currency becomes. Also, h igher interest rat es tend to ________ the currency. A. Stronger, strengthen B. Stronger, weake n C. Weaker, strengthen D. Weaker, weake n 8 If a central bank sells its own currency and buys foreign currenc ies as reserves, this will ________ export competitiveness by ______ the exchange rate. A. Decrease, strengthening B. Decrease, weakening C. Increase, strengthening D. Increase, weakening 9 Which of the following is not a valid advantage of a currency appreciation? A. Domestic firms are forced to become more competitive B. Imports become relative cheaper C. The general price level may fall D. The price of e xports become more attractive 10 Which of the following is not a disadvantage of a currency appreciation? A. Domestic producers become less competitive B. It forces governments to intervene in the currency market C. It may cause a balance of trade issue D. Unemployment may result 1 1 A c urrency depreciation benefits ________ and increases ________ in the domestic economy A. Exporters, employment B. Exporters, inflation C. Importers, inflation D. Importers, un employment © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 315 IB Economics MCQ Revision Pack 4.5 Exchange rates 1 2 Which of the following is a valid disadvantage of a currency depreciation? A. Domestic producers become relatively uncompetitive B. Imports are made relatively cheaper, allowing standards of living to rise C. There is a chance that the economy will experience i mported inflation D. Unemployment is likely to rise 1 3 What exchange rate system allows a currency to fluctuate between a narrow range of values due to constant government intervention in the currency markets ? A. Appreciation B. Depreciation C. Fixed D. Freely floating 1 4 To avoid depreciation of its currency, a central bank _____ the national currency using its foreign reserves. To avoid an appreciation, it _ ____ the local currency. A. Buy, buy B. Buy, sell C. Sell, buy D. The central bank does not influence exchange rates 1 5 Which of the following measures is not used to maintain a fixed exchange rate? A. Currency reserves B. Exchange controls C. Fiscal policy D. Monetary policy 1 6 Which system allows the exchange rate to fluctuate between a relatively wide range of values, with government intervention on an intermittent basis? A. Fixed exchange rate B. Floating exchange rate C. Gold standard D. Managed exchange rate 17 Capital inflows from Japan into Vietnam would cause ________ demand for the Vietnamese d ong and __ _____ supply of the Japanese y en. A. Decreased, decreased B. Decreased, increases C. Increased, decreased D. Increased, increased © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 316 IB Economics MCQ Revision Pack 4.5 Exchange rates 18 If the currency is kept artificially _______ , the exports from competing nations are rendered uncompetitive, so this may _______ trade relationships A. Strong, harm B. Strong, improve C. Weak, harm D. Weak, improve 19 Which of the following is not an advantage of a floating exchange rate system? A. Governments have significant freedom in monetary policy B. Greater p rice stability C. Large forex reserves do not have to be held D. Self - correction of balance of payments deficits or surpluses 20 Which of the following is not an advantage of a fixed exchange rate system? A. Governments have significant freedom in the use of monetary policy B. Greater p rice stability C. Prevention of excessive speculation in the foreign exchange market D. There is g reater focus on maintaining low levels of inflation 21 Which of the following is not a disadvantage of a floating exchange rate system? A. Greater uncertainty for foreign investors B. Imported inflation may occur C. It limits the scope of monetary policy for other purposes D. It may encourage greater speculation by foreign currency traders, causing currency volatility 22 In a floating exchange rate system, if the rate between the Venezuelan b olivar soberano (VE S ) and the US dollar (USD) changes from 1 VE S = USD0.1575 to USD0.1005, what has happened to the Venezuelan currency? A. Appreciated B. Depreciated C Devalued D Revalued © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 317 IB Economics MCQ Revision Pack 4.5 Exchange rates 23 The Hong Kong dollar (HKD) is pegged to the US dollar (USD) at a rate of USD1 = HKD7.8. Which exchange rate system is this an example of? A. Fixed exchange rates B Floating exchange rates C Independently f loating exchange rates D Managed exchange rates 24 Suppose that at the beginning of the year, the exchange rate between China (yuan or CNY ) and India (rupee or INR ) is 1CNY = 9.50INR. If India provides export subsidies to domestic fir ms, what is likely to happen to the CNY to INR rate? A. 1CNY = 9.50INR B. 9.50 CNY = 1INR C. 1CNY > 9.50INR D. 1CNY < 9.50INR 25. Suppose a product in Japan is priced at ¥ 16,350 . With all things being equal, what is the price of this product in the United States if the exchange rate is $1 = ¥ 109 ? A. $ 133 B. $ 150 C. $16,350 D. $ 1,782,150 26. The price of an iPhone in Singapore and the USA at two different points in time are shown below All other things being equal, i t can be seen that the SGD has ________ by _______ during this time. Price as at 31 /12/20 Price as at 31 /03/202 1 Singapore dollar (SGD) 1,071 1,135 U S dollar (USD) 799 799 A. Appreciated, 5.63% B. Appreciated, 6.22% C. Depreciated, 5.63% D. Depreciated, 6.22% . 6tXdents oI 2verseas )amiO\ 6chooO i f the euro (€) to USD ($) exchange rate stands at € 1 = $1.04 , how many euros would it take to purchase 1 USD? $. 0.0411 euros %. 0.9615 euros &. 1.00 euro '. 1.04 euros © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 318 IB Economics MCQ Revision Pack 4.5 Exchange rates 28 If the p rice of an iPhone in India is 50 ,000 Indian r upees (INR), while the price of the same iPhone in Hong Kong is 5,588 Hong Kong d ollars (HKD), what is the exchange rate of INR to HKD ? A. 0.1118 INR per HKD B. 0.1250 INR per HKD C. 8.7512 INR per HKD D. 8.9477 INR per HKD 29 Assume the US Dollar (USD) and Thai Baht (THB) exch ange rate is 40 THB per USD. If a US investor is looking to invest 7,200,000THB in Thailand, how many USD does s/he need? A. 1 8 0,000 B. 1 9 0,000 C. 200,000 D. 210,000 30. Which of the following explains the change in the exchange rate of the New Zealand dollar (NZD) against the Hong Kong dollar (HKD) in the diagram below? A. Fewer firms from New Zealand investing in Hong Kong B. Higher interest rates in Hong Kong C. Lower demand for HK exports from NZ households and firms D. More HK tourists visiting NZ S D 1 D 2 Price ( NZD per HKD ) 0.18 0.16 Quantity ( HKD ) © Level7 Education Limited | Overseas Family School, Singapore l Redistribution is strictly prohibited | Page 319