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Exchange Rates: Introduction quiz #1 Flashcards

Exchange Rates: Introduction quiz #1
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  • How can exchange rates indicate a country's economic health?
    Exchange rates reflect the value of a country's currency relative to others. A strong or stable exchange rate often signals economic strength, investor confidence, and healthy trade balances, while a weak or volatile rate may indicate economic challenges or instability.
  • Why might a country choose to peg its currency to the US dollar?
    A country may peg its currency to the US dollar to stabilize its exchange rate, reduce uncertainty in international trade, attract foreign investment, and maintain economic stability, especially if the US dollar is widely trusted and used in global markets.
  • What mathematical operation is used to calculate an exchange rate between two currencies?
    To calculate an exchange rate, you divide the amount of one currency by the amount of another currency, forming a ratio.
  • If the exchange rate is 1.54, what does this number represent in terms of currency units?
    It means for every one unit of the denominator currency, you receive 1.54 units of the numerator currency.
  • How can you use a calculator to find the inverse of an exchange rate, and what does it tell you?
    You divide 1 by the exchange rate to find the inverse, which tells you how much of the domestic currency you get for one unit of the foreign currency.
  • Why is it important to interpret the result of an exchange rate calculation, not just compute it?
    Interpreting the result helps you understand how much of one currency you receive for a unit of another, which is crucial for making financial decisions.
  • What does the denominator in an exchange rate ratio represent?
    The denominator represents the currency you are exchanging from, typically your domestic currency.
  • How does expressing an exchange rate as 'euros per US dollar' differ from 'US dollars per euro'?
    Both expressions yield the same numerical value but offer different perspectives on which currency is being exchanged for the other.
  • If you exchange $1 for €0.93, how would you calculate how many dollars you get for €1?
    You would divide 1 by 0.93, resulting in approximately $1.07 per €1.
  • What is the general formula for calculating an exchange rate between two currencies?
    The general formula is: amount of foreign currency divided by amount of domestic currency.