Question

1. What is the indirect quotation for the British pound at US1.3505?

   	A.	0.7405
   	B.	0.8202
   	C.	0.7768
   	D.	None

1 points   

QUESTION 24

1. A decrease in the current account deficit will place_____________ pressure on the home currency value, other things equal

   	A.	upward
   	B.	downward
   	C.	No
   	D.	upward or downward (depending on the size of the deficit)

1 points   

QUESTION 25

1. If a country experiences low inflation relative to the US, its exports to the US should______________

   	A.	increase; decrease
   	B.	increase; increase
   	C.	decrease; increase
   	D.	decrease; decrease

1 points   

Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place ____ pressure on the value of the British pound. Also, assume that interest rates in the U.K. begin to rise relative to interest rates in the U.S. The change in interest rates will place ____ pressure on the value of the British pound.

	A.	upward; downward
	B.	upward; upward
	C.	downward; upward
	D.	downward; downward

Answer 1

Answer 1:

OPTION A: 0.7405

Indrect quotation of British pound at US 1.3505

= 1/1.3505 = 0.7405

Answer 2:

OPTION A: upward

Reason: When current account deficit decreases, it means the exports are greater than imports, leading to more demand for home currency thus making its value go up. Hence, fall in current account deficit results in upward pressure on home currency.

Answer 3:

OPTION; Increase

Reason: When inflation is less in country X as compared to teh US, it means goods are cheaper, hence more exports will take place as cheaper goods will be demanded more, hence exports from this country  will increase( to the US)

Note: In the question, there is only one blank, hence I have answered accordingly.

Answer 4:

OPTION C: Downward; Upward

Reason: When inflation in UK goes up, it will lead to expensive goods hence low demand , thus imports will increase and exports will all down. When imports go up, it leads to sale of home currency thus putting downward pressure on it.

However when interest rates go up, it attracts foreign investment into the country thus creating demand for home country. This leads up upward pressure on home currency. (UK in this case)

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