All Free Economics MCQs with Answers
Every Economics question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
4,037 questions · page 57 of 202
- A. sell; appreciation
- B. sell; depreciation
- C. buy; depreciation
- D. buy; appreciation
Explanation: Because Boeing will receive euros later, it risks receiving fewer dollars if the euro depreciates.
Correct answer: sell; depreciation- A. forward contract
- B. spot contract
- C. money contract
- D. bid contract
Explanation: A forward contract fixes today the exchange rate for delivery of specified currencies at a future date.
Correct answer: forward contract- A. profit
- B. arbitrage
- C. spread
- D. forward transaction
Explanation: The spread is the difference between the dealer’s bid price, at which it buys currency, and its ask price, at which it sells currency.
Correct answer: spread- A. forward transaction
- B. spot transaction
- C. swap transaction
- D. None of the above
Explanation: Spot transactions dominate foreign-exchange trading, while outright forward transactions make up a much smaller share than spot and swap…
Correct answer: forward transaction- A. hedging
- B. speculation
- C. intervention
- D. arbitrage
Explanation: Hedging means taking a position that offsets a possible loss from exchange-rate movements.
Correct answer: hedging- A. increase in the demand for yen
- B. decrease in the demand for yen
- C. increase in the supply of yen
- D. decrease in the Supply of yen
Explanation: Canadian purchases of Japanese computers require Canadians to acquire yen to pay Japanese sellers.
Correct answer: increase in the demand for yen- A. America's demand for Swiss merchandise rises
- B. America's demand for Swiss merchandise falls
- C. Switzerland's demand for American merchandise rises
- D. Switzerland's demand for American merchandise falls
Explanation: When the franc becomes more expensive in dollars, Swiss residents have greater purchasing power for U.S.
Correct answer: Switzerland's demand for American merchandise rises- A. letter a credit
- B. foreign currency option
- C. cable transfer
- D. bill of exchange
Explanation: A foreign-currency option gives its buyer the right, but not the obligation, to buy or sell a specified currency at a predetermined price…
Correct answer: foreign currency option- A. constant
- B. inelastic
- C. elastic
- D. Unitary elastic
Explanation: When import demand is elastic, a depreciation causes a relatively large change in the quantity of imports demanded, making its impact most…
Correct answer: elastic- A. decrease; depreciate
- B. decrease; appreciate
- C. increase; depreciate
- D. increase; appreciate
Explanation: A tight monetary policy raises U.S. interest rates relative to Europe, attracting foreign capital and increasing demand for dollars.
Correct answer: increase; appreciate- A. upward sloping
- B. downward sloping
- C. vertical
- D. any of the above
Explanation: In the usual foreign-exchange market, a higher value of foreign currency encourages foreigners to supply more of it in exchange for…
Correct answer: upward sloping- A. GDP usually decreases before it increases after a currency depreciation
- B. the trade balance usually gets worse before it improves after a currency depreciation
- C. the trade balance usually gets better before it gets worse after a currency appreciation
- D. GDP usually decreases before it increases after a currency appreciation
Explanation: The J-curve describes the trade balance after a currency depreciation: it often worsens initially because import prices rise before…
Correct answer: the trade balance usually gets worse before it improves after a currency depreciation- A. depreciate under a system of fixed exchange rates
- B. depreciate under a system of floating exchange rates
- C. appreciate under a system of floating exchange rates
- D. appreciate under a system of floating fixed rates
Explanation: Relatively low interest rates reduce the incentive for foreign investors to hold the country’s assets, causing capital outflow and lower…
Correct answer: depreciate under a system of floating exchange rates- A. price feedback theory
- B. trade feedback theory
- C. J-curve theory
- D. purchasing power parity theory
Explanation: Purchasing power parity links exchange rates to relative price levels and inflation rates, implying that a currency tends to adjust to…
Correct answer: purchasing power parity theory- A. a depreciation of a currency
- B. a strengthening of a currency
- C. a floating of a currency
- D. an appreciation of a currency
Explanation: A fall in one currency’s value relative to another is depreciation. Appreciation or strengthening means the currency has gained value…
Correct answer: a depreciation of a currency- A. tends to lead to an appreciation of a nation's currency
- B. tends to lead to a depreciation of a nation's currency
- C. usually has no effect on a currency's exchange value
- D. tends to lead to a depreciation of the currencies of other nations
Explanation: Expansionary monetary policy lowers interest rates, which can encourage capital outflow and reduce foreign demand for the currency.
Correct answer: tends to lead to a depreciation of a nation's currency- A. adopted a new system of fixed exchange rates
- B. gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand
- C. adopted single internationally accepted currency whose use is limited to international transactions
- D. returned to the gold standard
Explanation: The Bretton Woods system began to break down in 1971, after which many countries moved away from formally fixed rates and allowed exchange…
Correct answer: gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand- A. hard currency
- B. foreign exchange
- C. reserve currencies
- D. near monies
Explanation: Foreign exchange means foreign currencies, or claims payable in those currencies, traded against the domestic currency.
Correct answer: foreign exchange- A. attempt to profit by trading on expectations about future currency prices
- B. bear risk as they attempt to ____ beat the market||
- C. attempt to buy currency at a low price and later resell that currency at a higher price
- D. Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit
Explanation: Speculators accept exchange-rate risk while trying to profit from expected price movements.
Correct answer: Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit- A. reflects only the influences of merchandise or real trade on the dollar's exchange value
- B. reflects only transactions in the currency futures market
- C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
- D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?
Explanation: The real effective exchange rate is a trade-weighted average of a currency against those of major trading partners, adjusted for relative…
Correct answer: is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?