Practice Questions
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What is the primary effect of speculative trading on a currency's value?
Speculative trading can increase demand for a currency. Other options are incorrect because Some might think that more trading means more supply, whic...
How does speculation in the currency market influence the effectiveness of a country's fiscal policy in achieving currency appreciation?
Speculation can create uncertainty in the currency market. Other options are incorrect because Some might think speculation doesn't matter at all; It'...
How can market sentiment and speculation lead to the appreciation of a currency?
When people believe a country's economy will do well, they want to buy its currency. Other options are incorrect because Lower interest rates can make...
Which of the following scenarios best illustrates how a government's fiscal policy can lead to currency appreciation through adjustments in the trade balance?
When the government reduces taxes on exports, companies can sell more goods abroad. Other options are incorrect because Some might think that just spe...
How does a decrease in inflation in a country affect its currency appreciation in the foreign exchange market?
When inflation goes down, people want to buy that country's currency more. Other options are incorrect because Some might think lower inflation means ...
What happens to a country's currency value when it appreciates?
When a currency appreciates, it means it is stronger. Other options are incorrect because Some might think that a stronger currency means it buys less...
What is one primary factor that can lead to the appreciation of a currency in the foreign exchange market?
When interest rates go up, people want to save money in that currency. Other options are incorrect because Some might think that a smaller economy mak...
How does an increase in demand for a country's goods and services typically affect its currency value?
When more people want a country's goods, they need that country's money to buy them. Other options are incorrect because Some might think that more de...
If Songland's Central Bank aims to increase the value of its currency against the Euro, which of the following actions would effectively achieve this goal?
Increasing interest rates makes saving money more attractive. Other options are incorrect because Selling Euros while buying Songland dollars might se...
If a central bank increasing interest rates is to currency appreciation as a government increasing taxes is to what?
When taxes go up, people have less money to spend. Other options are incorrect because Some might think higher taxes mean people save more; People mig...
What is the correct sequence of actions that Songland's Central Bank should take to appreciate its currency in the foreign exchange market?
Increasing interest rates makes saving money in Songland more attractive. Other options are incorrect because This option suggests lowering interest r...
Songland's Central Bank aims to stabilize the value of its currency, currently fluctuating against the Euro. If the Central Bank decides to sell Euros in the Foreign Exchange Market, what is the likely immediate effect on the value of the Songland dollar relative to the Euro, and why?
When the Central Bank sells Euros, it puts more Euros into the market. Other options are incorrect because This answer suggests that selling Euros inc...
To increase the value of their currency, Songland's Central Bank should _____ Euros in the Foreign Exchange Market to raise interest rates and increase demand for the Songland dollar.
When the Central Bank sells Euros, it makes the Songland dollar more valuable. Other options are incorrect because Buying Euros would lower the value ...
If Songland's Central Bank wants to appreciate its currency against the Euro, it can achieve this by increasing interest rates through selling government bonds, which would lead to higher demand for Songland dollars in the foreign exchange market. True or False?
When interest rates go up, people want to save money in Songland dollars. Other options are incorrect because Some might think that interest rates don...
If Songland's Central Bank wants to appreciate its currency to 0.58 songland dollars per Euro, what strategy should they employ in the Foreign Exchange Market?
Selling Euros increases the demand for songland dollars. Other options are incorrect because Buying Euros would lower the demand for songland dollars;...
Which of the following actions can a central bank take to appreciate its currency? Select all that apply.
None of the actions listed will help make the currency stronger. Other options are incorrect because Raising interest rates can attract investors, but...
If the central bank of Songland sells Euros in the foreign exchange market, what is the likely effect on the value of the Songland dollar?
When the central bank sells Euros, it increases the supply of Euros. Other options are incorrect because Some might think that selling Euros makes the...
If Songland's Central Bank aims to appreciate the songland dollar to 0.58 Euros, what should they do in the foreign exchange market?
Selling Euros increases the demand for Songland dollars. Other options are incorrect because Buying Euros would actually make Songland dollars less va...
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