Interest & Exchange Rates

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1. 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.
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2. What is an exchange rate?

  • A tax you pay when buying goods whilst abroad
  • The price of buying foreign currency
  • The rate you pay back on a loan
  • A tax businesses pay to operate in another country

3. What is an interest rate?

  • A tariff on foreign imports
  • A tax paid by consumers when buying foreign goods
  • 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

4. If the value of the pound decreases, who will be affected?

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

5. What is meant by a fixed interest rate?

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


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