6.
How does a trade deficit impact currency
World Trade, Quiz #1
Name: Class
Schedule:
Saturday,
12:00PM-
3:00PM
1. What determines foreign currency exchange
rates in open markets?
A) Government regulations
B) Supply and demand
C) Central bank decisions
D) Historical trends
2. Which forces control exchange rates?
A) Demand and supply
B) Political stability
C) Currency reserves
D) Trade deficits
3. The law of demand states that:
A) Quantity demanded increases as price rises
B) Quantity demanded falls as price rises
C) Quantity demanded remains constant
regardless of price
D) Quantity demanded is unrelated to price
4. What happens to currency demand when a
country experiences a trade surplus?
A) Currency demand increases
B) Currency demand decreases
C) Currency demand remains unchanged
D) Currency demand becomes volatile
5. A trade deficit occurs when:
A) A country exports more than it imports
B) A country imports more than it exports
C) A country has balanced trade
D) A country’s currency appreciates
1
exchange rates?
A) It strengthens the country’s currency
B) It weakens the country’s currency
C) It has no effect on currency rates
D) It leads to currency stability
7. The labor demand curve shifts down for an
import good because:
A) World prices are higher than domestic prices
B) World prices are lower than domestic prices
C) Labor demand increases due to trade
D) Labor demand remains constant
8. Exchange rates between currencies are
influenced by:
A) Government policies
B) Consumer preferences
C) Trade balances
D) Weather conditions
9. What is the relationship between trade deficits
and currency demand?
A) Trade deficits increase currency demand
B) Trade deficits decrease currency demand
C) Trade deficits have no impact on currency
demand
D) Trade deficits lead to currency appreciation
10. Why do exchange rates fluctuate?
A) Political events
B) Supply and demand imbalances
C) Central bank interventions
D) All of the above
11. What is the primary factor that influences
the value of a country’s currency in the foreign
exchange market?
A) Government debt
B) Trade balance
C) Population size
D) Cultural heritage 17. What happens to the supply of a country’s
currency when its central bank engages in open
market operations to purchase government
12. When a country’s currency appreciates, bonds?
what impact does it have on imports and
A) Supply increases
exports?
B) Supply decreases
A) Imports become cheaper, exports become
more expensive C) Supply remains constant

B) Imports become more expensive, exports D) Supply becomes unpredictable

become cheaper

C) Both imports and exports become cheaper

18. A country with a high inflation rate is likely
D) Both imports and exports become more to experience:
expensive
A) A stronger currency

B) A weaker currency
13. Which of the following scenarios would
C) No impact on currency value
likely lead to an increase in the demand for a
country’s currency? D) Fluctuating currency value
A) A decrease in interest rates

B) A rise in exports 19. Which of the following is an example of a

non-tariff barrier to trade?
C) A budget deficit
A) Import quotas
D) Political instability
B) Export subsidies

C) Currency exchange rates

14. What is the term for the difference between
a country’s exports and imports? D) Embargoes
A) Trade balance

B) Trade surplus 20. What is the primary purpose of a central

bank’s intervention in the foreign exchange
C) Trade deficit
market?
D) Trade equilibrium
A) To stabilize exchange rates

B) To maximize profits
15. If a country experiences a trade surplus,
C) To regulate stock markets
what is the likely impact on its currency value?
D) To control inflation
A) Currency appreciates

B) Currency depreciates

C) Currency remains unchanged

D) Currency becomes volatile

16. Which economic indicator reflects the

overall health of a country’s economy and
influences currency exchange rates?

A) Gross Domestic Product (GDP)

B) Consumer Price Index (CPI)

C) Unemployment rate

D) Stock market performance