Lesson 65

Question 1

Draw a graph for depreciation

Answer 1

Normal equilibrium graph

Shift supply to the right

x axis = quantity of £

y axis = price of £ in $

equilibrium point = exchange rate

Question 2

exchange rates (nominal)

Answer 2

determine the price of one currency in terms of all other currencies around the world

Question 3

Bi-lateral exchange rates

Answer 3

compare one currency against another

e.g. GBP/SEK

Question 4

Purchasing Power Parity (PPP):

Answer 4

The theory that the cost of purchasing a basket of traded goods or services is equal

Question 5

Debits - short form?

Answer 5

Dr

Question 6

Credit - short form?

Answer 6

Cr

Question 7

Debits definition

Answer 7

in terms of trade

something bought

imports

Question 8

Credits definition

Answer 8

in terms of trade

something sold

exports

Question 9

Effective exchange rate (trade weighted)

Answer 9

measures the value of a currency against a ‘basket’ of other currencies

Question 10

Exchange rate : £1 = $2

If £1 > $2

then £ is?

Answer 10

overvalued

UK will be comparatively cheaper