Interest & Exchange Rates

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  • Created by: rashed98
  • Created on: 02-05-14 20:14

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

  • Significant capital flows may destabilise the economy.
  • 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.
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2. What is an exchange rate?

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

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

  • ICI (a UK firm) buying raw materials from overseas
  • UK speculator buying shares on the New York Stock Exchange
  • Boeing (US aircraft manufacturer) buying engines from Rolls-Royce in the UK
  • UK tourists going on holiday

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

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

5. What is meant by a fixed interest rate?

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