AS Economics: Exchange Rates

If there were a large outflow of sterling from the UK, which of the following would you expect to occur?
1. A rise in the exchange value of the £
2. A fall in the exchange value of the £
3. A fall in interest rates
4. A rise in interest rates
A sustained rise in interest rates in the United States is likely to result in
1. An off-setting fall in UK interest rates
2. An increase in short term capital flows from the United States to the UK
3. A fall in the sterling exchange rate against the US dollar
4. A rise in UK interest rates
When a country's exchange rate is freely-floating, it is likely to appreciate in the long run if
1. World output falls
2. There is an increase in capital flows out of the country
3. The country's inflation rate falls relative to inflation rates in other countries
4. The country's central bank releases more of the country's currency onto foreign exchange markets
The chart below shows the average weekly exchange rate between sterling and the Euro from 1999 - 2002.

From the chart we can deduce that
1. the euro has appreciated against sterling over the period 1999 - 2002
2. the pound has appreciated against the euro over the period 1999 -2002
3. euro area inflation has been higher than inflation in the UK over the period 1999 -2002
4. British exports to the euro area will have fallen over the period 1999 - 2000
If the UK government wished to see the value of sterling appreciate against the Japanese yen, it could
1. sell sterling and buy yen
2. lower tariffs on Japanese goods
3. buy sterling and sell yen
4. lower interest rates
Fixed exchange rates may be preferred to floating exchange rates because with fixed exchange rates
1. there is less need for a country to hold large reserves of foreign currency
2. there is greater stability of the exchange rate which encourages trade and investment
3. interest rates can be used to meet domestic policy objectives such as keeping growth stable
4. there is less likely to be a balance of payments deficit
The chart shows the sterling exchange rate and the balance of trade in goods for the UK since 1990

The data in the chart shows that
1. The UK economy has run a trade surplus in goods in each year since 1990
2. The sterling exchange rate has depreciated over the period 1990 - 2000
3. UK exports of goods have fallen since 1996
4. The sterling exchange rate has appreciated against other currencies in the period since the start of 1996
What would result from a depreciation of the pound on the foreign exchange market?
1. An increase in the price of imported computers
2. A fall in the price of imported computers
3. An increase in the purchasing power of UK tourists overseas
4. A fall in the purchasing power of US tourists in London
Which is most likely to cause a rise in the value of sterling against other currencies?
1. The Bank of England announces lower interest rates
2. There is a fall in the value of UK exports overseas
3. There is a large rise in the number of UK citizens purchasing foreign holidays
4. The Bank of England announces higher interest rates
What will be the effect of the value of the pound sterling changing from 2000 to 2500 Italian lire?
1. British tourists travelling to Italy will see a decrease in their real purchasing power
2. UK exports to Italy will become cheaper
3. Italian exports to the UK will become more expensive
4. The Italian lire will be cheaper in terms of the pound
If the pound rose in value against other currencies, what would be likely to happen?
1. Foreign cars would become more expensive in the UK
2. The number of foreign tourists visiting Britain would decrease
3. The price of raw materials imported into the UK would rise
4. UK exports would become cheaper abroad
A depreciation of sterling against other currencies would most likely to lead to
1. A fall in the cost of imported raw materials
2. An increase in the demand for UK holidays from overseas tourists
3. A decrease in the overseas demand for UK produced goods
4. A fall in the rate of inflation in the UK
The economics news on the television reports that the dollar has strengthened relative to the Japanese yen. This means that;
1. the yen can now purchase more dollars
2. the dollar has depreciated relative to the yen
3. the dollar can now purchase more yen
4. the US trade balance with the Japanese economy has improved
Which of the following will influence a country's exports?
1. costs of transporting goods from country to country
2. consumer tastes for domestic and foreign goods
3. prices of goods at home and abroad
4. all of the above
A government is faced with a balance of payments deficit. It may take action to deal with this by doing all of the following except
1. Devalue the currency
2. Restrict imports
3. Reduce interest rates
4. Restrict consumer spending
The diagram below represents the demand for and supply of £ sterling in the foreign exchange market

Which one of the following could account for a shift of the demand curve D1 to D2
1. A fall in UK interest rates relative to interest rates in the Euro Zone
2. An increase in the UK balance of payments deficit against Euro Zone countries
3. A rise in UK interest rates relative to interest rates in the Euro Zone
4. The development of Euro Zone substitutes for United Kingdom goods
Between 1995 and the second quarter of 1998 the sterling effective exchange rate index increased from 84.8 to 105.4. Which one of the following woudld be likely to result?
1. UK exports will become more competitive
2. Employment in manufacturing industry will fall
3. Inflationary pressures will grow
4. The cost of imported raw materials and components will rise
Which one of the following would appear as a credit item in the UK Balance of Payments on Current Account?
1. The purchase by a German company of a UK carpet manufacturer
2. Money sent by UK relatives to their relatives abroad
3. Expenditure on local services by UK troops stationed abroad
4. The expenditure of American tourists in the UK
The chart below trackls the average weekly value of sterling against the United States dollar

From the data it can be concluded that
1. Sterling has appreciated against the dollar over the period shown
2. The UK must have been running a current account deficit with the United States over this period
3. During 2002, the purchasing power of UK tourists visiting the United States would have increased
4. The rate of inflation in the United States must have exceeded the rate of inflation in the UK
Since September 1992 which type of exchange rate system has the UK economy used?
1. A free floating exchange rate
2. A managed floating exchange rate
3. A semi-fixed exchange rate
4. A fully-fixed exchange rate
"Since the sharp appreciation of sterling in 1996, UK export volumes have tended to grow more slowly" (Bank of England Inflation Report, August 2000)

Which of the following might help to explain the slow growth in export volumes following an appreciation in the sterling exchange rate? The rise in the exchange rate increases
1. the average costs of domestic manufacturing companies
2. the average foreign currency price of UK exports
3. the demand for UK products in the home market, and so fewer goods are exported
4. inflation and makes UK products less competitive

AS Economics: Exchange Rates

Economics Multiple-choice Quiz