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What is the primary role of a central bank in an economy?
A) To control a country's monetary policy and ensure financial stability
B) To invest in stock markets for profit
C) To set exchange rates for private banks
D) To regulate only the retail banking sector
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How do central banks primarily influence the forex market?
A) By directly trading forex pairs
B) By setting interest rates and controlling inflation
C) By issuing government bonds to the public
D) By controlling global gold reserves
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When a central bank raises interest rates, what typically happens to its currency?
A) The currency depreciates because borrowing becomes cheaper
B) The currency appreciates because higher rates attract investors
C) The currency remains unchanged
D) The currency weakens due to inflation
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What is the term for a central bank's direct intervention in the forex market to influence currency value?
A) Quantitative easing
B) Fiscal policy
C) Currency intervention
D) Trade balance adjustment
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What economic indicator do central banks closely monitor to adjust monetary policy?
A) Consumer spending habits
B) Unemployment rate
C) Inflation rate
D) Public debt levels
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What is 'quantitative easing' (QE) and how does it affect forex markets?
A) A strategy where central banks lower interest rates to control inflation
B) A policy where central banks print money to buy government bonds, often weakening the currency
C) A tax policy used to increase government revenue
D) A foreign exchange rate policy that pegs currency values
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How does inflation affect a currency’s value in forex trading?
A) High inflation strengthens the currency due to increased spending
B) High inflation weakens the currency as purchasing power declines
C) Inflation has no impact on currency valuation
D) Inflation increases a currency’s supply but not its value
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Which major central bank is responsible for the U.S. monetary policy?
A) Bank of England
B) European Central Bank
C) Federal Reserve
D) International Monetary Fund
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If a central bank unexpectedly lowers interest rates, how will forex traders likely react?
A) Buy that country's currency
B) Sell that country's currency
C) Stop trading immediately
D) Increase leverage on all trades
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What is the key difference between monetary policy and fiscal policy?
A) Monetary policy is controlled by the central bank, while fiscal policy is managed by the government
B) Fiscal policy affects inflation, while monetary policy does not
C) Monetary policy deals with taxation, while fiscal policy deals with interest rates
D) There is no difference; they are the same
