This a MCQ (Multiple Choice Question) based practice test of Chapter 6 - Open Economy Macroeconomics of Economics of Class XII (12) for the quick revision/preparation of School Board examinations
Q Foreign exchange rate of a country is the
A source of supply of foreign exchange is
Foreign exchange means
Balance of payment Accounts is a
A source of demand for foreign exchange is
A deficit in balance of trade indicates
A trade deficit is an economic measure of international trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT).
Trade Deficit = Total Value of Imports – Total Value of Exports
Fixed exchange rate is
Flexible exchange rate is
Flexible exchange rate is determined by
The Flexible exchange rates can be defined as exchange rates determined by global supply and demand of currency. In other words, they are prices of foreign exchange determined by the market, that can rapidly change due to supply and demand, and are not pegged nor controlled by central banks.
Point out a merit of fixed exchange rate
Prevents Speculation in foreign exchange market: Another important merit of fixed exchange rate system is that it does away with speculation in foreign exchange markets. The advocates of fixed exchange rate system points out that the flexible and unstable exchange rate encourages speculation in foreign exchange market.