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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)price of a foreign currency in terms of the domestic currency
- b)price of a foreign good in terms of the domestic good
- c)price of a foreign factor in terms of the domestic factor
- d)price of a foreign trade in terms of the domestic trade
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
This a MCQ (Multiple Choice Question) based practice test of Chapter 6...
The foreign exchange rate of a country is the price of a foreign currency in terms of the domestic currency.
The foreign exchange rate refers to the value of one currency in terms of another currency. It is the rate at which one currency can be exchanged for another. In the context of this question, the foreign exchange rate of a country is specifically the price of a foreign currency in terms of the domestic currency.
Explanation:
The foreign exchange rate plays a crucial role in international trade and finance. It determines the value of one country's currency relative to another country's currency, and thus affects the cost of imports and exports, as well as the competitiveness of a country's goods and services in the global market.
When we say that the foreign exchange rate is the price of a foreign currency in terms of the domestic currency, it means that it indicates how much of the domestic currency is required to buy a unit of the foreign currency. For example, if the exchange rate between the US dollar (USD) and the Indian rupee (INR) is 1 USD = 75 INR, it means that 75 Indian rupees are required to buy 1 US dollar.
The foreign exchange rate is determined by various factors such as supply and demand for currencies, interest rates, inflation, political stability, and economic indicators. Governments and central banks also play a role in influencing the exchange rate through monetary policies and interventions in the foreign exchange market.
Significance of the foreign exchange rate:
The foreign exchange rate has several important implications:
1. International trade: The exchange rate affects the cost of imports and exports. A higher exchange rate makes imports cheaper and exports more expensive, while a lower exchange rate makes imports more expensive and exports cheaper. This can impact a country's trade balance and competitiveness in the global market.
2. Capital flows: The exchange rate influences capital flows between countries. A higher exchange rate may attract foreign investment, as it increases the purchasing power of foreign investors. On the other hand, a lower exchange rate may encourage domestic investment and discourage capital outflows.
3. Inflation and purchasing power: Changes in the exchange rate can affect the domestic inflation rate and the purchasing power of consumers. A depreciation in the domestic currency can lead to higher inflation, as the cost of imported goods and raw materials increases. This can reduce the purchasing power of consumers.
4. Exchange rate risk: Businesses engaged in international trade and investment face exchange rate risk. Fluctuations in the exchange rate can impact the profitability of transactions and the value of foreign investments.
In conclusion, the foreign exchange rate of a country is the price of a foreign currency in terms of the domestic currency. It is a key determinant of international trade, capital flows, inflation, and purchasing power. Understanding and monitoring exchange rate movements is crucial for businesses, policymakers, and individuals involved in global economic activities.
The foreign exchange rate refers to the value of one currency in terms of another currency. It is the rate at which one currency can be exchanged for another. In the context of this question, the foreign exchange rate of a country is specifically the price of a foreign currency in terms of the domestic currency.
Explanation:
The foreign exchange rate plays a crucial role in international trade and finance. It determines the value of one country's currency relative to another country's currency, and thus affects the cost of imports and exports, as well as the competitiveness of a country's goods and services in the global market.
When we say that the foreign exchange rate is the price of a foreign currency in terms of the domestic currency, it means that it indicates how much of the domestic currency is required to buy a unit of the foreign currency. For example, if the exchange rate between the US dollar (USD) and the Indian rupee (INR) is 1 USD = 75 INR, it means that 75 Indian rupees are required to buy 1 US dollar.
The foreign exchange rate is determined by various factors such as supply and demand for currencies, interest rates, inflation, political stability, and economic indicators. Governments and central banks also play a role in influencing the exchange rate through monetary policies and interventions in the foreign exchange market.
Significance of the foreign exchange rate:
The foreign exchange rate has several important implications:
1. International trade: The exchange rate affects the cost of imports and exports. A higher exchange rate makes imports cheaper and exports more expensive, while a lower exchange rate makes imports more expensive and exports cheaper. This can impact a country's trade balance and competitiveness in the global market.
2. Capital flows: The exchange rate influences capital flows between countries. A higher exchange rate may attract foreign investment, as it increases the purchasing power of foreign investors. On the other hand, a lower exchange rate may encourage domestic investment and discourage capital outflows.
3. Inflation and purchasing power: Changes in the exchange rate can affect the domestic inflation rate and the purchasing power of consumers. A depreciation in the domestic currency can lead to higher inflation, as the cost of imported goods and raw materials increases. This can reduce the purchasing power of consumers.
4. Exchange rate risk: Businesses engaged in international trade and investment face exchange rate risk. Fluctuations in the exchange rate can impact the profitability of transactions and the value of foreign investments.
In conclusion, the foreign exchange rate of a country is the price of a foreign currency in terms of the domestic currency. It is a key determinant of international trade, capital flows, inflation, and purchasing power. Understanding and monitoring exchange rate movements is crucial for businesses, policymakers, and individuals involved in global economic activities.
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This a MCQ (Multiple Choice Question) based practice test of Chapter 6...
Exchange rates are defined as the price of one country's currency in relation to another country's currency.
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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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer?
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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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer?.
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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer?.
Solutions for 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC.
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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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer?, a detailed solution for 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? has been provided alongside types of 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice 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 examinationsQ Foreign exchange rate of a country is thea)price of a foreign currency in terms of the domestic currencyb)price of a foreign good in terms of the domestic goodc)price of a foreign factor in terms of the domestic factord)price of a foreign trade in terms of the domestic tradeCorrect answer is option 'A'. Can you explain this answer? tests, examples and also practice UPSC tests.
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