Question 1

If the currency AUD/USD moves from 0.9870-75 to 0.9364,there has been:

Accepted Answer

When the AUD/USD currency pair moves from 0.9870-75 to 0.9364, it means that it now takes less US dollars to buy one Australian dollar. This indicates a depreciation of the AUD and an appreciation of the USD. Therefore, the correct choice is C. Choice D, a change in the bid-offer spread, is not relevant in this scenario.

Question 2

If the demand for _______ goods falls,relative to ______ goods,the domestic currency will depreciate.

Accepted Answer

When the demand for domestic goods falls relative to foreign goods, there will be less demand for domestic currency to purchase domestic goods. This will lead to a decrease in the value of the domestic currency relative to foreign currencies, causing it to depreciate.

Question 3

If the currency AUD/USD moves from 0.9527-32 to 0.9555-60,there has been:

Accepted Answer

The currency pair AUD/USD has increased from 0.9527-32 to 0.9555-60, indicating an increase in the value of the Australian dollar (AUD) relative to the US dollar (USD). This is known as an appreciation of the AUD. Thus, option B is the correct answer. Option A would be correct if the currency pair moved in the opposite direction, while option C would be correct if the AUD had decreased in value. Option D is not relevant to the question as it refers to a change in bid-offer spread, which has not been specified in the given scenario.

Question 4

In a floating exchange rate regime,the exchange rate is the equilibrium price of the currency.Changes in demand for a currency will cause changes in the equilibrium exchange rate.Which of these statements in relation to the AUD demand curve in the FX market is incorrect?

Accepted Answer

The demand curve for the AUD in the FX market is actually upward-sloping, meaning that as the price of the AUD increases, the demand for the currency decreases. This is because a higher price makes Australian goods, services and assets more expensive for foreign buyers and therefore reduces demand for them, which in turn reduces demand for the AUD.

Question 5

A change in the Australian dollar value of the British pound from $2.60 to $2.50 means:

Accepted Answer

When the Australian dollar value of the British pound changes from $2.60 to $2.50, it means that the Australian dollar has appreciated relative to the pound. This is because it now takes fewer Australian dollars to buy one British pound, indicating that the Australian dollar has increased in value compared to the pound. Therefore, choice C is the correct answer.

Question 6

If the exchange rate of yen/AUD rises,we should expect Australian exports to Japan to:

Accepted Answer

When the exchange rate of yen/AUD rises, it means that the Australian dollar has depreciated against the yen. This makes Australian exports more expensive for Japanese buyers, reducing demand and leading to a decrease in quantity. Conversely, imports from Japan should increase because Japanese goods are now relatively cheaper for Australian consumers.

Question 7

The FX rate at the point where the demand and supply curves for a currency intersect is called a/an:

Accepted Answer

The best choice is B, as the FX rate at the point where demand and supply curves intersect is known as the equilibrium exchange rate, which represents the market's balance between buyers and sellers of the currency. A balanced, intersection, or stable exchange rate does not accurately describe this concept.

Question 8

If the Japanese buy more Australian goods,they _____ more yen and _____ more dollars in the foreign exchange market.

Accepted Answer

If the Japanese buy more Australian goods, they are supplying more yen in exchange for Australian dollars in the foreign exchange market (supply). This increased supply of yen would result in a decrease in the value of yen relative to the Australian dollar, making it cheaper for the Japanese to buy Australian goods. On the other hand, the increased demand for Australian dollars would drive up their value in the foreign exchange market (demand).

Question 9

When a country's exchange rate appreciates,the price of:

Accepted Answer

When a country's exchange rate appreciates, its currency becomes stronger compared to other currencies. This makes the country's goods more expensive for foreign buyers, hence the price of that country's goods abroad increases.

Question 10

The foreign exchange rate regime used by most international countries is a _____ regime.

Accepted Answer

The answer of The foreign exchange rate regime used by...

Question 11

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.At AUD0.97,there would be excess _____ the dollar and the dollar would _____ in the return to equilibrium.

Accepted Answer

At AUD 0.97 per USD, it means it costs more AUD to buy 1 USD, indicating a lower demand or higher supply of USD. In the return to equilibrium, the USD would depreciate to match the demand at the lower price of AUD 0.94 per USD.

Question 12

If Japan imports more Australian goods,all else being equal,there will be an increased:

Accepted Answer

The answer of If Japan imports more Australian goods,all else...

Question 13

A rising dollar makes Australian goods:

Accepted Answer

A rising dollar means that the value of the Australian dollar is increasing relative to other currencies. This makes Australian goods more expensive abroad, which decreases the demand for them and ultimately results in a decrease in the volume of Australian exports.

Question 14

According to the text the critical determinant of the FX value of a currency is:

Accepted Answer

Exchange rate expectations are a critical determinant of the FX value of a currency as they influence investor behavior and market dynamics, impacting currency demand and supply.

Question 15

The regime whereby the value of a domestic currency is locked in to a specified multiple of another country is called:

Accepted Answer

When a domestic currency is locked in to a specified multiple of another country, it is called a pegged regime.

Question 16

When a country's exchange rate depreciates,the price of:

Accepted Answer

When a country's exchange rate depreciates, its goods become relatively cheaper in foreign markets. This means that the price of that country's goods abroad decreases, making them more competitive and increasing demand for them.

Question 17

An increase in demand for a country's _______ will cause its currency to appreciate in the long run,while an increase in demand for its _______ will cause its currency to depreciate.

Accepted Answer

An increase in demand for a country's exports will cause an increase in the demand for its currency, which will appreciate in the long run. This is because foreigners will need to buy the country's currency to obtain its exports. Conversely, an increase in demand for a country's imports will mean an increase in demand for the foreign currency needed to buy those imports, driving down the value of the country's currency. Therefore, the correct answer is D, exports; imports.

Question 18

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.If the actual exchange rate is AUD/USD0.90 at AUD 0.90,there would be excess _____ the dollar and the AUD dollar would _____ in the return to equilibrium.

Accepted Answer

At an actual exchange rate lower than the equilibrium (AUD/USD 0.90 < AUD 0.94), there is excess demand for the USD, and to return to equilibrium, the AUD would appreciate.

Question 19

A falling dollar makes Australian goods:

Accepted Answer

A falling dollar makes Australian goods less expensive abroad, which in turn increases the demand for Australian goods and thus increases the volume of Australian exports.

Question 20

The regime whereby the value of a currency is determined by demand and supply conditions in the FX markets is called:

Accepted Answer

A floating exchange rate regime is one where the value of a currency is determined by market forces of supply and demand. The exchange rate is free to move in response to changes in these forces, without any interference from government or central bank interventions. This is in contrast to a fixed exchange rate regime where the value of a currency is fixed against another currency or a basket of currencies, and a pegged exchange rate regime where the value of a currency is allowed to move within a narrow band around a fixed rate. The term "variable" is not commonly used to describe an exchange rate regime.

Quiz 16: Foreign Exchange: Factors That Influence the Exchange Rate