1. Directions

You will read passages on the topic and then answer questions about them. You may find vocabulary at the end of the test. Read the questions carefully before choosing the correct answers.

2. Questions of the test

Question 1. What is the main factor that determines exchange rates?
A) The relative supply and demand for a country's currency
B) Interest rates
C) Inflation
D) Political and economic stability

Question 2. What is the main difference between a fixed exchange rate system and a floating exchange rate system?
A) In a fixed exchange rate system, the value of a currency is pegged to the value of another currency or a basket of currencies, while in a floating exchange rate system, the value of a currency is determined by the forces of supply and demand in the foreign exchange market.
B) In a fixed exchange rate system, the value of a currency is determined by the forces of supply and demand in the foreign exchange market, while in a floating exchange rate system, the value of a currency is pegged to the value of another currency or a basket of currencies.
C) In a fixed exchange rate system, the value of a currency is more stable, while in a floating exchange rate system, the value of a currency is more volatile.
D) In a fixed exchange rate system, the value of a currency is more volatile, while in a floating exchange rate system, the value of a currency is more stable.

Question 3. What is one benefit of a fixed exchange rate system?
A) It can provide stability and predictability
B) It allows a country to respond to economic shocks
C) It provides a cushion against inflation
D) It allows businesses and investors to make long-term plans and decisions

Question 4. What is one challenge of a floating exchange rate system?
A) It can be more volatile
B) It can limit a country's monetary policy options
C) It can be difficult to sustain in the face of economic or political shocks
D) It can make it harder for businesses and investors to plan and make decisions

Question 5. What is one way that governments can influence exchange rates?
A) By manipulating the supply and demand for their currency
B) By adjusting interest rates
C) By implementing policies to control inflation
D) All of the above