Canadian Securities Course (CSC) Level 1 Practice Exam

What are the determinants of the exchange rate?

1. Unemployment rates and central bank policies

2. Interest rate parity and foreign exchange reserves

3. Commodities, inflation rate, interest rate, trade, economic performance, public debts, and deficits

4. Stock market fluctuations and consumer confidence levels

The correct answer is: Commodities, inflation rate, interest rate, trade, economic performance, public debts, and deficits

The determinants of the exchange rate are factors that influence the value of one currency relative to another. In this question, option C correctly identifies the key determinants of the exchange rate. These include commodities, inflation rate, interest rate, trade, economic performance, public debts, and deficits. Factors like the supply and demand for a currency, the relative purchasing power of currencies, the level of interest rates, and a country's economic indicators all play a significant role in determining exchange rates. The other options are incorrect because they do not cover the breadth of factors that influence exchange rates. Option A is not entirely accurate as unemployment rates and central bank policies may have some impact on exchange rates but are not the primary determinants. Option B mentions interest rate parity and foreign exchange reserves, which are important factors but do not encompass all of the determinants listed in option C. Option D, which refers to stock market fluctuations and consumer confidence levels, are not as directly linked to determining exchange rates as the factors listed in option C.