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What are the types of exchange rates?- a)Fixed exchange rate and floating exchange rate
- b)Managed exchange rate and balanced exchange rate
- c)Base exchange rate and quote exchange rate
- d)Direct exchange rate and indirect exchange rate
Correct answer is option 'A'. Can you explain this answer?
What are the types of exchange rates?
a)
Fixed exchange rate and floating exchange rate
b)
Managed exchange rate and balanced exchange rate
c)
Base exchange rate and quote exchange rate
d)
Direct exchange rate and indirect exchange rate
|
Nwachukwu Eze answered |
Types of Exchange Rates
Exchange rates determine how much one currency is worth in terms of another. They are crucial for international trade, investment, and economic stability. Two primary types of exchange rates are:
1. Fixed Exchange Rate
- A fixed exchange rate, also known as a pegged exchange rate, is when a country's currency value is tied to another major currency (like the US dollar) or a basket of currencies.
- This system is generally maintained by the country's government or central bank, intervening in the foreign exchange market to stabilize the currency.
- Advantages include predictability for exporters and importers, reduced risk of currency fluctuations, and economic stability.
2. Floating Exchange Rate
- In a floating exchange rate system, the value of a currency is determined by market forces—supply and demand in the global market.
- Fluctuations can be frequent and may be influenced by factors such as interest rates, inflation, political stability, and overall economic performance.
- While this system allows for automatic adjustment to economic conditions, it can lead to uncertainty and risk for international trade.
Conclusion
Understanding these two types of exchange rates is essential for grasping how global economics functions. While fixed rates offer stability, floating rates provide flexibility, each with its own set of advantages and challenges.
Exchange rates determine how much one currency is worth in terms of another. They are crucial for international trade, investment, and economic stability. Two primary types of exchange rates are:
1. Fixed Exchange Rate
- A fixed exchange rate, also known as a pegged exchange rate, is when a country's currency value is tied to another major currency (like the US dollar) or a basket of currencies.
- This system is generally maintained by the country's government or central bank, intervening in the foreign exchange market to stabilize the currency.
- Advantages include predictability for exporters and importers, reduced risk of currency fluctuations, and economic stability.
2. Floating Exchange Rate
- In a floating exchange rate system, the value of a currency is determined by market forces—supply and demand in the global market.
- Fluctuations can be frequent and may be influenced by factors such as interest rates, inflation, political stability, and overall economic performance.
- While this system allows for automatic adjustment to economic conditions, it can lead to uncertainty and risk for international trade.
Conclusion
Understanding these two types of exchange rates is essential for grasping how global economics functions. While fixed rates offer stability, floating rates provide flexibility, each with its own set of advantages and challenges.
How are exchange rates determined in a managed exchange rate system?- a)By market forces of supply and demand
- b)By central bank interventions
- c)By government regulations
- d)By changes in global economic conditions
Correct answer is option 'B'. Can you explain this answer?
How are exchange rates determined in a managed exchange rate system?
a)
By market forces of supply and demand
b)
By central bank interventions
c)
By government regulations
d)
By changes in global economic conditions
|
Deepak Iyer answered |
In a managed exchange rate system, exchange rates are determined through central bank interventions. The central bank actively buys or sells its currency to influence its value in relation to other currencies. This intervention aims to maintain stability and avoid excessive fluctuations in the exchange rate.
What is the objective of examining the composition and direction of a country's foreign trade?- a)To identify the types of exchange rates
- b)To understand the balance of trade
- c)To analyze the goods and services a country imports and exports
- d)To determine the problems of balance of payments
Correct answer is option 'C'. Can you explain this answer?
What is the objective of examining the composition and direction of a country's foreign trade?
a)
To identify the types of exchange rates
b)
To understand the balance of trade
c)
To analyze the goods and services a country imports and exports
d)
To determine the problems of balance of payments
|
|
Deepak Iyer answered |
The objective of examining the composition and direction of a country's foreign trade is to analyze the goods and services a country imports and exports. This analysis helps understand the structure of trade and identify patterns, trends, and areas for improvement.
What is the basis for international trade?- a)Absolute advantage
- b)Comparative advantage
- c)Balance of trade
- d)Exchange rate
Correct answer is option 'B'. Can you explain this answer?
What is the basis for international trade?
a)
Absolute advantage
b)
Comparative advantage
c)
Balance of trade
d)
Exchange rate
|
|
Deepak Iyer answered |
The basis for international trade is comparative advantage. According to this theory, countries should specialize in producing goods or services in which they have a lower opportunity cost compared to other countries. This allows for more efficient resource allocation and mutually beneficial trade between nations.
What are the problems associated with balance of payments?- a)Trade deficits
- b)Trade surpluses
- c)Fluctuating exchange rates
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
What are the problems associated with balance of payments?
a)
Trade deficits
b)
Trade surpluses
c)
Fluctuating exchange rates
d)
All of the above
|
|
Deepak Iyer answered |
Problems associated with balance of payments include trade deficits (where imports exceed exports), trade surpluses (where exports exceed imports), and fluctuations in exchange rates. These imbalances can have various economic implications and require corrective measures to restore stability. Therefore, option d) is the correct answer.
What is the difference between absolute advantage and comparative advantage?- a)Absolute advantage refers to the ability to produce more with the same resources, while comparative advantage refers to the ability to produce at a lower opportunity cost.
- b)Absolute advantage refers to the ability to produce at a lower opportunity cost, while comparative advantage refers to the ability to produce more with the same resources.
- c)Absolute advantage and comparative advantage are the same concept.
- d)Absolute advantage and comparative advantage are unrelated to international trade.
Correct answer is option 'A'. Can you explain this answer?
What is the difference between absolute advantage and comparative advantage?
a)
Absolute advantage refers to the ability to produce more with the same resources, while comparative advantage refers to the ability to produce at a lower opportunity cost.
b)
Absolute advantage refers to the ability to produce at a lower opportunity cost, while comparative advantage refers to the ability to produce more with the same resources.
c)
Absolute advantage and comparative advantage are the same concept.
d)
Absolute advantage and comparative advantage are unrelated to international trade.
|
|
Deepak Iyer answered |
Absolute advantage refers to the ability of a country to produce more of a good or service using the same amount of resources. Comparative advantage, on the other hand, refers to the ability of a country to produce a good or service at a lower opportunity cost compared to other countries. Therefore, option a) is the correct explanation.
What is the relationship between import restrictions and balance of trade?- a)Import restrictions increase the balance of trade.
- b)Import restrictions decrease the balance of trade.
- c)Import restrictions have no impact on the balance of trade.
- d)The relationship between import restrictions and the balance of trade is unpredictable.
Correct answer is option 'B'. Can you explain this answer?
What is the relationship between import restrictions and balance of trade?
a)
Import restrictions increase the balance of trade.
b)
Import restrictions decrease the balance of trade.
c)
Import restrictions have no impact on the balance of trade.
d)
The relationship between import restrictions and the balance of trade is unpredictable.
|
|
Deepak Iyer answered |
Import restrictions, such as tariffs or quotas, aim to reduce imports and protect domestic industries. By limiting imports, import restrictions can decrease the balance of trade by reducing the trade deficit.
What factors influence the composition and direction of a country's foreign trade?- a)Government policies
- b)Exchange rates
- c)Comparative advantages
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
What factors influence the composition and direction of a country's foreign trade?
a)
Government policies
b)
Exchange rates
c)
Comparative advantages
d)
All of the above
|
|
Deepak Iyer answered |
The composition and direction of a country's foreign trade are influenced by multiple factors, including government policies, exchange rates, and comparative advantages in specific industries or sectors. Government policies can affect trade through regulations, tariffs, and subsidies, while exchange rates impact the competitiveness of exports and imports. Comparative advantages determine the specialization and focus of a country's trade activities.
How do changes in exchange rates impact international trade?- a)Changes in exchange rates have no impact on international trade.
- b)Appreciation of a country's currency makes its exports more expensive and imports cheaper.
- c)Depreciation of a country's currency makes its exports more expensive and imports cheaper.
- d)Changes in exchange rates only affect domestic trade, not international trade.
Correct answer is option 'C'. Can you explain this answer?
How do changes in exchange rates impact international trade?
a)
Changes in exchange rates have no impact on international trade.
b)
Appreciation of a country's currency makes its exports more expensive and imports cheaper.
c)
Depreciation of a country's currency makes its exports more expensive and imports cheaper.
d)
Changes in exchange rates only affect domestic trade, not international trade.
|
|
Deepak Iyer answered |
Changes in exchange rates have a significant impact on international trade. When a country's currency appreciates, its exports become more expensive and imports become cheaper, potentially leading to a decrease in exports and an increase in imports. Conversely, when a country's currency depreciates, its exports become cheaper and imports become more expensive, potentially boosting exports and reducing imports.
What are the corrective measures for balance of payments problems?- a)Import restrictions
- b)Export promotion
- c)Monetary policy adjustments
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
What are the corrective measures for balance of payments problems?
a)
Import restrictions
b)
Export promotion
c)
Monetary policy adjustments
d)
All of the above
|
|
Deepak Iyer answered |
Corrective measures for balance of payments problems include import restrictions, which aim to reduce imports and promote domestic production, and export promotion, which focuses on increasing exports. Additionally, monetary policy adjustments, such as exchange rate management, can also be used to correct imbalances in the balance of payments. Therefore, option d) is the correct answer.
Chapter doubts & questions for International Trade - Economics for JAMB 2025 is part of JAMB exam preparation. The chapters have been prepared according to the JAMB exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for JAMB 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
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