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The term foreign exchange means
Foreign exchange refers to the stock of foreign currencies required to trade between countries.
The gold standard system of exchange rate lost its importance during
Gold standard start to loose its importance during 1920s, post the world war and rising prices of gold around the globe.
Which of the following countries still follows fixed exchange rate system?
There are very few countries in the world which still follows fixed exchange rate system including Fiji, Kuwait, Morocco, and Libya,
The ________ expresses the ratio of exchange between the currencies of two countries.
Foreign exchange rate is the rate at which one unit of foreign currency is exchanged for some units of domestic currency.
Devaluation of currency is a component of _______ exchange rate system.
Devaluation refers to the decrease in the value of domestic currency as planned by the government under fixed exchange rate.
What will be the most likely impact on the national income when in a country the price of foreign currency rises, keeping other things unchanged?
ise in exchange rate leads to depreciation of domestic currency. Depreciation of currency encourages exports and inflow of foreign exchange. This process is likely to have a positive impact on the national income of the country.
Before the Bretton Woods standard system, exchange rates were pegged against ______
Before the Bretton Woods standard, gold standard was followed. Under that system of exchange, rates were fixed or tied against US Dollar.
Suppose the government plans to reduce the prices of US Dollar from ₹ 50 to ₹ 45. This step is known as ............ of domestic currency.
This is a deliberate step taken by the government to rise the value of domestic currency. This is known a revaluation of domestic currency against foreign currency.
The fixed exchange rate is determined by the Reserve Bank of India.
The fixed exchange rate is determined by the government of the country.
Increase in the value of domestic commodities in terms of foreign currency is known as
When the value of domestic commodity increases, it indicates increase in the value of domestic currency. This situation could either be appreciation or revaluation depending upon the type of exchange rate.
Relationship between demand for foreign exchange and foreign exchange rate is
Demand for foreign exchange and foreign exchange rate is indirect or inverse i.e., when foreign exchange rate increase, its demand falls.
A downward movement along the demand curve for foreign exchange indicates
A downward movement along demand curve is caused by fall in exchange rate, which represents appreciation of domestic currency.
he US $ exchange rate for rupee is ₹ 75 now, as compared to ₹ 63 previously. This shows that the value of rupee has
Price of US Dollar rose from ₹ 63 per unit to ₹ 75 per unit, this shows that the value of domestic currency has fallen over the time period due to market forces. This is known as depreciation of domestic currency.
Currency appreciation depicts a situation when domestic currency gains its value in relation to a foreign currency.
Rising in the value of domestic currency in the foreign exchange market is known as currency appreciation,
Under managed floating exchange rate system, central bank determines the exchange rate and excessive fluctuation is checked by the market forces.
Under managed floating exchange rate system, market forces determine the exchange rate and excessive fluctuation is checked by the central bank.
If ₹ 75 are required to buy 1$, instead of ₹ 78 per US Dollar, this situation is indicating that
As less units of domestic currency are required to exchange one unit of foreign currency, this situation refers to appreciation of domestic currency.
Clean floating exchange rate is determined at a point where
Floating exchange rate is determined by the market forces of demand and supply. Like a general price determination, exchange rate is determined at a point where demand and supply are equal.
It has been observed in recent times that Indian currency is depreciating against US Dollar. Which of the following reason can be accounted for the same?
There are many reasons that can be accounted for depreciation of Indian currency against UD Dollar, few of such reasons are listed in options.
Assertion (A): Demand for foreign exchange and exchange rate moves in the same direction.
Reason (R): When exchange rate rises domestic goods becomes cheaper in international market.
Demand for foreign exchange and exchange rate are inversely proportional, i.e., with increase in one other fall and vice-versa.
Assertion (A): Manage floating exchange rate system is a hybrid system of exchange rate used by the most of the countries in recent time.
Reason (R): Excessive fluctuation in exchange rate system is checked by the central authority under dirty floating exchange rate.
Under managed floating exchange rate, price is determined by the market forces however, excessive fluctuation is checked by the central bank. Thus, this system has components of both fixed and floating exchange rate system and known as dirty floating exchange rate.
Choose the correct statement from given below.
Accommodating transactions are undertaken for balancing the BoP, thus these are only recorded in capital account of BoP.
Balance on invisible trade is equal to
Invisible items are the services. Balance on invisible items is calculated as the difference between exports and imports of services.
Balance of trade is a _______ concept as compared to balance of payments.
Balance of trade only includes export and import of goods while balance of payments includes all international concepts. So, BoT is a narrower concept as compared to BoP.
Trade deficit refers to the situation where
Trade deficit and balance of trade deficit are one or the same thing, it is the situation where import of goods exceeds the export of goods during a given period of time.
Uni-lateral transfers are included in
Uni lateral transfers are one way transactions which have no impact on the assets or liabilities of the country, thus recorded in the current account of BoP.
India outsources voice-based services and record keeping on a large scale. This will be considered as
The given are the examples of export of services, thus considered as invisible trade and recorded in current account of BoP.
Suppose India is exporting goods more as compared to importing goods, this will lead to _______ in balance of trade.
Export of goods leads to inflow of foreign exchange while import leads to outflow. In the given situation, as the inflows are greater than outflow, it leads to surplus in BoT.
Increase in foreign exchange reserves are recorded in credit side of capital account.
Foreign exchange reserves are considered as an asset for the economy and increase in assets are always debited as per accounting rule. So, increase in foreign exchange reserve will be recorded on debit side of capital account.
An Indian real estate company receives rent from Google in New York. This transaction would be recorded on _____ side of ______ account.
As the rent is received, so, it is an inflow of currency and considered as a credit item. Also, rent does not impact the assets or liabilities of the country thus, it is recorded in current account of BoP.
Choose the incorrect statement from given below.
Surplus is the situation of excess of receipts over expenditures. In BoP, it happens when the balance of credit side exceeds the balance of debit side.
Transactions which are undertaken to cover the dis-equilibrium (deficit or surplus) in balance of payments are called _____
Accommodating transactions are only undertaken when there is a deficit in BoP. Thus, these are known as below the line items.
State of balance of payments always balances regardless of the types of transactions.
State of BoP need not always balances as different account of BoP (Current account and Capital account) might have different balance.
BoP always balance when accommodating items are reflected as a part of capital account of BoP.
Accommodating transactions are balancing transactions, so, when these are included, BoP always balances.
Balance of payments ‘surplus refer to excess of
Surplus in BoP is a state where receipts on account of autonomous items exceeds over autonomous payment as these are independent of BoP.
What will be the likely impact of increase in tariff on balance of trade keeping other things unchanged?
A tariff is a tax on import, which makes imports expensive in the domestic market.
The rise in tariff keeping exports unchanged, will likely to have a positive impact on BoT.
For balance of payments to be in equilibrium, which of the following will happen?
In order to attain equilibrium in BoP, there will be deficit in one account and surplus in the other of equivalent amount.
During the outbreak of the second wave of Covid-19 in the country, India received medical equipments from many countries. On which account and which side it will be recorded?
The given is an example of uni lateral transfers received. So, it will be recorded on the credit side of current account of BoP.
What will be the impact of Make in India Programme on the India’s BoP?
The given programme attracts foreign investment in India, this will lead to inflow of foreign currency, hence improving the state of BoP for the country.
Assertion (A): Accommodating transactions are undertaken to make equilibrium in BoP account.
Reason (R): Accommodating items are also called above the line items.
Accommodating transactions are balancing transactions of BoP, so these are called as below the line items.
Assertion (A): Purchase of Machinery from rest of the world is an economic transaction of capital account of BoP.
Reason (R): Any transaction that impacts the assets or liabilities of a country are recorded on current account of BoP.
Purchase of machinery will be recorded in current account of BoP as it is considered as an import of goods. Whereas transaction that has an impact on the assets or liabilities of the country is recorded in capital account of BoP.