Interest & Exchange Rates

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1. What is an interest rate?

  • The percentage reward or payment over a period of time that is given to savers on savings or paid by borrowers on loans
  • A tariff on foreign imports
  • A tax paid by consumers when buying foreign goods
  • The rate at which foreign goods are bought
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2. If the value of the pound increases, who will benefit most?

  • UK importers of materials
  • UK businesses
  • UK exporters of goods
  • UK tourism

3. A business is most likely to be badly affected by a rise in interest rates if it has:

  • High borrowings at fixed a rate
  • High cash balances
  • High borrowings at a variable rate
  • High fixed costs

4. Which of the following is NOT a disadvantage of a fixed exchange rate system?

  • Significant capital flows may destabilise the economy.
  • Significant capital flows may destabilise the economy.
  • Companies will have problems because of uncertainty about import and export prices.
  • Governments cannot allow the exchange rate to depreciate to restore balance of payments equilibrium.

5. Interest rates are most likely to be cut when the economy is:

  • Experiencing high inflation
  • Experiencing much lower employment
  • Entering a recession
  • Enjoying a boom


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