Lesson 4.2.6.4

4.2.6.4 Exchange rate systems Quiz: AQA Economics, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 4.2.6.4, Exchange rate systems: 20 multiple choice questions for the AQA Economics (7136), Unit 2: The national and international economy, written with Revision Ninja.

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The 20 questions

  1. What determines the exchange value of a currency in a freely floating exchange rate system?

    • Supply and demand
    • Gold reserve levels
    • Central bank targets
    • Government price controls

  2. Which exchange rate system pegs a currency's value against another foreign currency?

    • Managed float
    • Free market system
    • Fixed system
    • Floating system

  3. Which action can a central bank take to support or raise its currency's exchange rate?

    • Increasing money supply
    • Selling domestic currency
    • Lowering interest rates
    • Buying domestic currency

  4. What is a key advantage of a freely floating exchange rate system?

    • Automatic adjustment
    • Zero exchange risk
    • Fixed inflation rate
    • Complete price certainty

  5. What is a major disadvantage of a floating exchange rate system for international trade?

    • Fixed interest rates
    • Currency volatility
    • Guaranteed parity
    • Lower trade volumes

  6. What primary feature is shared by all member countries in a currency union?

    • Identical budget deficits
    • Identical tax rates
    • A single currency
    • Equal government debt

  7. What is a main economic advantage for members of a currency union?

    • Lower transaction costs
    • Monetary policy independence
    • Lower tax rates
    • Higher tariffs

  8. What happens to a floating exchange rate when demand for exports rises?

    • It appreciates
    • It stays fixed
    • It depreciates
    • It devalues

  9. How can a central bank directly increase the value of its currency?

    • Lowering interest rates
    • Selling domestic currency
    • Buying domestic currency
    • Imposing import tariffs

  10. What is a major disadvantage of maintaining a fixed exchange rate?

    • Increased inflation risk
    • Loss of independence
    • Exchange rate volatility
    • Higher transaction costs

  11. Why can a currency union member not use devaluation to restore competitiveness?

    • Strict capital controls
    • Floating exchange rates
    • No national currency
    • High inflation rates

  12. What causes a speculative attack on a fixed exchange rate?

    • Fixed interest rates
    • Mass currency buying
    • High foreign reserves
    • Mass currency selling

  13. How do short-term capital inflows affect a country's floating exchange rate?

    • Currency depreciates
    • Currency appreciates
    • Currency devalues
    • Rate remains unchanged

  14. The exchange rate is 1 pound equals 1.25 dollars. A US good costs 50 dollars. What is its cost in pounds?

    • 50 pounds
    • 40 pounds
    • 0.04 pounds
    • 62.50 pounds

  15. What main benefit does a floating exchange rate provide over a fixed rate?

    • Guaranteed trade balance
    • Price certainty
    • Lower transaction costs
    • Monetary policy autonomy

  16. Which policy instrument is lost when a country joins a currency union?

    • Government spending
    • Income tax rates
    • Supply-side policies
    • Independent interest rates

  17. What is a main economic cost of joining a currency union?

    • Increased tariff barriers
    • Inability to devalue
    • Higher exchange volatility
    • Greater exchange uncertainty

  18. How does currency appreciation caused by higher interest rates affect aggregate demand?

    • Imports decrease
    • Net exports rise
    • Net exports fall
    • Consumption increases

  19. What factor can severely limit a government's ability to defend a fixed exchange rate?

    • High tax revenues
    • Low inflation rates
    • Depleted foreign reserves
    • Strong economic growth

  20. What happens to the domestic price of imports when a currency depreciates?

    • Import tariffs drop
    • Import prices freeze
    • Import prices fall
    • Import prices rise

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