BMIS – L1 – SA – Q4.1 – The external environment

Identifies factor causing Ghanaian Cedi exchange rate to fall.

Question

Question: Which of the following will cause the exchange rate value of the Ghanaian Cedi to fall?

A A rise in demand for Ghanaian exports by non-residents

B A rise in Ghanaian interest rates

C A desire by multinational companies to expand their manufacturing base in Ghana

D An expansion of the Ghanaian community’s desire to travel to other countries

Answer

Explanation:

The correct answer is D because an expansion of the Ghanaian community’s desire to travel overseas increases the supply of Ghanaian Cedis in the foreign exchange market, as residents convert Cedis to foreign currency. This increased supply, without a corresponding increase in demand, causes the Cedi’s exchange rate to fall. Options A, B, and C all increase demand for the Cedi (e.g., through exports, higher interest rates attracting investment, or multinational investment), which would strengthen the Cedi’s value.

Tags: Currency valuation, Economic Factors, Exchange rate, External environment, Ghanaian Cedi
Level: Level 1

Topic: The external environment

Uploader: Samuel Duah