Using a Fixed Exchange Rate to Undervalue Your Currency

question 54

Multiple Choice

Using a fixed exchange rate to undervalue your currency:

• A) will increase your exports.
• B) will encourage capital flow to countries other than your own.
• C) makes imports very expensive for your citizens.
• D) All of these statements are true.

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Definitions:

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor.

Fixed Cost

A fixed cost is an expense that does not change with the level of goods or services produced by a business, such as lease payments or insurance premiums.

Sunk Cost

A sunk cost is a past expense that has already been incurred and cannot be recovered. Businesses cannot alter these costs with future decisions.

Uncontrollable Cost

Expenses that cannot be changed or influenced by the actions of a particular department or manager.