Foreign Exchange Markets is one of 9 topics in the Grade 12 Economics CAPS syllabus, covered across 3 lessons on Study Vault. Below are real practice questions from this topic with full worked answers.
Sample practice questions
Easy
1. Under a floating exchange rate system, the exchange rate is determined by:
The interaction of demand and supply for the currency in the foreign exchange market
A fixed value set permanently by the government
The price of gold only
The size of the country's population
Answer: The interaction of demand and supply for the currency in the foreign exchange market — Under a floating exchange rate, market forces of demand and supply for the currency determine its value, just as demand and supply determine the price of any traded good.
Easy
2. An increase in foreign demand for South African exports will tend to:
Increase demand for rand, causing the rand to appreciate
Increase supply of rand, causing the rand to depreciate
Have no effect on the rand's value
Only affect the US dollar, not the rand
Answer: Increase demand for rand, causing the rand to appreciate — Foreigners must buy rand to pay for South African exports, so rising export demand increases demand for rand, which (all else equal) causes the rand to appreciate.
Medium
3. The exchange rate is R18,50 = 1 USD. Convert R9 250 into US dollars.
Answer: 500 — To convert rand to US dollars, divide by the exchange rate: 9250 / 18,50 = 500 USD.
