PEC2143 (JULY 2021) KPTM BANGI

89 Exchange Rate

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

MULTIPLE-CHOICE QUESTIONS

Section A (Multiple Choice)

1. An exchange rate refers to __________.

A. exports minus imports
B. the ratio of exports to imports
C. the price at which purchases and sales of foreign goods take place
D. the amount of one country’s currency in terms of another country’s currency

2. The exchange rate that will be determined by the forces of supply and demand is known as
A. Gold standard system.
B. floating exchange rate.
C. Bretton wood system.
D. swap market system

3. The value of currency is falling, then it follows that

A. the price index is falling.
B. real income is falling.
C. interest rate is rising.
D. price index is rising.

4. An excess demand for Malaysia Ringgit in the floating exchange rate system will lead to
A. a depreciation of malaysia ringgit.
B. an appreciation of malaysia ringgit.
C. a long term surplus of malaysia ringgit.
D. a long term shortage of malaysia ringgit.

5. The floating exchange rate is the

A. total yearly amount of money changed from one country’s currency to another country’s
currency.
B. amount of a country’s currency that can be exchanged for one ounce of gold.
C. sum of net unilateral transfers.
D. price of one country’s currency in terms of another country’s currency.

6. If the US dollar depreciates in the foreign exchange market, American exports will be ________
and American imports will be _______.
A. more expensive; more expensive
B. more expensive; less expensive
C. less expensive; less expensive
D. less expensive; more expensive

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

7. If foreign exchange rate is determined by the market forces for various currencies, then the
exchange rate is
A. fixed
B. floating
C. set by the value of gold
D. government-determined

8. If Malaysia Ringgit appreciates relatives to the Singapore dollar

A. There is no reason to expect either appreciation or depreciation of the Singapore dollar.
B. The Singapore dollar must depreciate relative to the Malaysia Ringgit.
C. The Singapore dollar may also appreciate in value.
D. The Singapore dollar will appreciate only if Malaysia exports to Japan exceed Malaysia
imports from Japan.

9. When an exchange rate is determined strictly by the demand for and supply of a nation’s currency,
it is called ______ exchange rate system.
A. fixed
B. arbitrage
C. floating
D. unilateral

10. An appreciation in the U.S dollar benefits which of the following groups of people?
A. All people living in the United States.
B. U.S producers who export farm equipment to other countries.
C. U.S. consumers who buy imported automobile.
D. Foreigners who wish to travel to the United States.

11. Under the system of freely floating exchange rates, an increase in the international value of a
nation’s currency will
A. cause an international surplus of its currency.
B. contribute to disequilibrium in its balance of payments.
C. cause gold to flow into that country.
D. cause its import to rise.

12. If the exchange rate of yen for dollars increases from 100 yen = USD1 to 110 yen = USD1, then
A. Japanese goods will become more expensive.
B. the dollar has depreciated.
C. the yen has appreciated.
D. U.S. produced goods will become more expensive.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

13. A fall in value of one currency relative to another is

A. a floating of the currency
B. a strengthening of a currency
C. an appreciation of a currency
D. a depreciation of a currency

14. If the exchange rate between the U.S. dollar and the Malaysian ringgit is RM4 per U.S dollar, how
much is the price of a Honda HRV that costs RM99, 000 in U. S dollar?
A. US $ 20,000
B. US $ 24,750
C. US $ 25,450
D. US $ 50,000

15. Which of the following will NOT generate a demand for Ringgit Malaysia (RM)?
A. Japanese tourists have vacation in Malaysia
B. Malaysian students studying medicine in Ireland
C. Australian citizens buy retirement houses in Penang
D. Europeans like to go scuba diving in Perhentian Island

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

STRUCTURED QUESTIONS

QUESTION 1

a. Define appreciation of a currency.

b. Answer the following questions based on Figure 1.

RM per dollar

Supply of $

Demand for $

0 Quantity of Dollar

i. You have decided to purchase a helicopter that costs RM900,000. Using the equilibrium
exchange rate between dollars and RM in Figure 1, calculate how much you have to
pay the price of helicopter in US dollar.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

ii. Suppose a Malaysian company decides to purchase a new IBM computer from Apple
Co (an American company). The dollar price is $40,000. At the equilibrium exchange
rate in Figure 1, calculate how much the Malaysian company has to pay the computer
in RM.

iii. At the exchange rate of US$1.00 = RM2 in Figure 1, what will happen to the demand
for dollar? Why?

iv. What type of exchange rate system is used in Figure 1.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 2

The table below shows the exchange rate of Ringgit Malaysia (RM) against the major currency in
2014.

Table 5

Currency Exchange rate in terms of RM

1 US Dollar 3.8250
1 Swiss Franc 2.31
1 British Pound Sterling 4.71
1 Kuwaiti Dinar 10.95
1 Singapore Dollar 2.47

a. Define floating exchange rates.

b. Calculate the value of RM1 in terms of the above foreign currency.

c. If the exchange rate for Pound Sterling to Malaysian Ringgit changes from
UK£1 = RM6.30 to UK£1 = RM 5.60,

i. Determine whether Malaysian Ringgit has depreciated or appreciated?

ii. What are the impacts on Malaysian export?

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 3

Convert the following currency into a unit of Malaysian Ringgit (RM1).

(a) 1 US Dollar = RM3.20

(b) 1 Euro dollar = RM5.00

(c) 100 Japanese Yen = RM32.00

(d) 100 Saudi Riyal = RM95.00

(e) 1,000,000 Indonesian Rupiah = RM350.00

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 4

Figure 1

Foreign Exchange

SS US$

1US$=RM6.00

1US$=RM3.50

1US$=RM1.00

DD US$

Quantity of US$

a. Determine the exchange rate between US dollars and Ringgit Malaysia.

b. A Malaysian consumer bought products from US for US$ 45,000.00. How much she need to
pay in RM?

c. An American consumer orders Malaysian hand-made crafts at the price of RM 6, 500.00. How
much does he need to pay in US dollar?

d. Define what is exchange rate and determine the type of exchange rate system adopted by
these countries.

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 5

The table below shows the exchange rate of Ringgit Malaysia (RM) against the major currency in
2015.

Table 5

Currency Exchange rate in terms of RM

1 US Dollar 3.3108
1 Argentina Peso 2.4021
1 Thai Bath 9.7859
1 Swedish Krona 1.9350
1 Sri Lankan Rupee 39.441

a. Define floating exchange rates. (2 points)

b. Calculate the value of RM1 in terms of the above foreign currency. (5 points)

c. If the exchange rate for Pound Sterling to Malaysian Ringgit changes from
UK£1 = RM7.30 to UK£1 = RM 6.60,

i. Determine whether Malaysian Ringgit has depreciated or appreciated? (1 point)

ii. What are the impacts on Malaysian export? (2 points)

10

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 6

Table 6 shows the exchange rate of Ringgit Malaysia (RM) against the major currency for 2013.

Table 6

Currency Exchange rate in terms of RM

1 US Dollar 4.39
1 Swiss Franc 4.36
100 Thai Baht 12.10
100 Japanese Yen 3.71
1 New Zealand Dollar 2.88

a. Define exchange rates. (2 points)

b. Calculate the value of RM1 in terms of the above foreign currency. (5 points)

c. If the exchange rate for Swiss Franc to Malaysian Ringgit changes from
1 Swiss Franc = RM 4.36 to 1 Swiss Franc = RM 5.50,
i. Determine whether Malaysian Ringgit has depreciated or appreciated? (1 point)

ii. What are the impacts on Malaysian export? (2 points)

(Total : 10 points)

11

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

SHORT ESSAY QUESTIONS

MARKS
1 Differentiate between a depreciation of the dollar and devaluation of the dollar. 4
2 Explain the difference between adjustable exchange rate system and managed- 4
floating exchange rate system.
3 Differentiate between fixed exchange rate and flexible/floating exchange rate 4

4 Define what is exchange rate. 2

5 State THREE (3) advantages and THREE (3) disadvantages of a floating 6

exchange rate system.
6 Differentiate between the fixed exchange rate and the floating exchange rate 4

12

Compiled by: haslin hs