Tag: balance of payments

Questions Related to balance of payments

A change from $Rs.140 = 2$ pounds to $Rs. 60 = 1$ pounds indicates that Rs. is:

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. Appreciating

  2. Depreciating

  3. Neither (a) nor (b)

  4. Either (a) or (b)

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Correct Option: A
Explanation:

A change from RS 140 = 2 pounds to Rs 60 = 1 pounds indicates that rupees is appreciating. Appreciation of domestic currency is a situation of a fall in exchange rate. Less rupees are needed to buy one pound.

Depreciation of domestic currency leads to rise in exports. 

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. True

  2. False

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Correct Option: A

Appreciation of Indian rupees will occur when $Rs. 45$ have to be paid to exchange one $US $ $ instead of present rate of $Rs. 40/$ $. 

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. True

  2. False

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Correct Option: B
Explanation:

In case of appreciation, lesser rupees have to be paid to exchange one US dollar, i.e. less than $Rs. 40/$ $

Which of the following items raises the supply of foreign exchange?

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. Import of goods from China

  2. Indian students going to USA for MBA

  3. Donation of 50 million $ $ $ received from Microsoft

  4. Purchase of land in England

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Correct Option: C

In spot market, sale and purchase of foreign currency is settled on a specified future date. 

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. True

  2. False

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Correct Option: B
Explanation:

In spot market, sale and purchase of foreign currency is settled immediately

Depreciation of domestic currency leads to rise in _____________.

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. Exports

  2. Imports

  3. Both (a) and (b)

  4. Neither (a) nor (b)

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Correct Option: A

Flexible exchange rate system is also known as __________. 

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. pegged exchange rate system

  2. dirty floating

  3. floating exchange rate

  4. both B and C

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Correct Option: C
Explanation:

Flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' or 'floating exchange rate' as it is determined by the free play of supply and demand forces in the international money market.

Devaluation of currency means ____________________.

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. Reduction in the value of domestic currency by the market forces

  2. Reduction in the value of domestic currency by the government

  3. Both (a) and (b)

  4. Neither (a) nor (b)

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Correct Option: B
Explanation:

Devaluation of currency mainly occurs in countries with fixed exchange rate. It refers to the reduction in the value of domestic currency by the government.

When receipts of foreign exchange are more than payments of foreign exchange, BOP is ____________.

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. Balanced

  2. Surplus

  3. Deficit

  4. None of these

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Correct Option: B

A rise in supply of a currency would lead to its appreciation, assuming no change in other factors. 

business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

  1. True

  2. False

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Correct Option: B