Interest & Exchange Rates

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1. Which of the following affect the demand for the pound on the foreign exchange market?

  • UK speculator buying shares on the New York Stock Exchange
  • UK tourists going on holiday
  • Boeing (US aircraft manufacturer) buying engines from Rolls-Royce in the UK
  • ICI (a UK firm) buying raw materials from overseas
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2. Which of the following is NOT a disadvantage of a fixed exchange rate system?

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

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

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

4. What is an interest rate?

  • A tariff on foreign imports
  • The percentage reward or payment over a period of time that is given to savers on savings or paid by borrowers on loans
  • The rate at which foreign goods are bought
  • A tax paid by consumers when buying foreign goods

5. What is meant by a fixed interest rate?

  • A tax paid by tradesmen
  • Interest rates will only change if the prime minister says they must
  • An interest rate which will not change at whatsoever over the life of a loan
  • An interest rate which can flucuate


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