MCQs - Foreign Exchange Rate | Crash Course of Macro Economics -Class 12 - Commerce PDF Download

Q.1 Devaluation which means fall in value of domestic currency in terms of foreign currency takes place in _____.

(a) Flexible Exchange Rate regime
(b) Fixed Exchange Rate regime

(c) Both (a) and (b)
(d) Neither
Ans: B

Q.2 A change from Rs. 60 = 1dollar  to rs 62 = 1dollar  indicates that Rs has _____.

(a) Appreciated
(b) Depreciated
(c) Neither
(d) Either (a) or (b)
Ans: B

Q.3 Indian rupee is appreciated in terms of British pound because of

(a) Failing demand of pounds
(b) Shortage of pounds

(c) More supply of Indian rupees
(d) Less demand for Indian rupees.
Ans: C

Q.4 Other things remaining unchanged, when in a country the price of foreign currency rises, national income is ____.

(a) Likely to rise
(b) Likely to fall
(c) both
(d) Not affected
Ans: A

Q.5 Which of the following events can be expected to occur as a response to an expansion of exports of India ?

(a) Appreciation of rupee
(b) Depreciation of dollar    

(c) Depreciation of rupee
(d) All of the above.

Q.6 If rupee is getting depreciated fast and is considered undesirable by the government, the RBI may be advised to

(a) Sell dollars in the foreign exchange market
(b) Purchase dollars 

(c) Print more currency notes
(d) Raise tariffs on imports.
Ans: A

Q.7 If in an effort to control depreciation of rupee the RBI puts more dollars in the supply, it may lead to greater inflation, caused by

(a) Increase in money supply in the economy    

(b) Reduced availability of goods due to increased exports.

(c) Reduced availability of goods due to reduced imports

(d) All of the above.
Ans: D

Q.8 In which of the following items raises the supply of foreign exchange ?

(a) Import of goods from China
(b) Indian students going to USA for MBA

(c) Donation of 50 million $ received from Microsoft
(d) Purchase of land in England
Ans: C

Q.9 A change from Rs. 140 = 2 £ to Rs. 60 = 1 £ indicates that Rs. is 

(a) Appreciated
(b) Depreciated
(c) Neither
(d) Either (a) or (b)
Ans: A

Q.10 ______ refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention.

(a) Flexible Exchange Rate System
(b) Managed Floating Rate System
(c) Floating Exchange Rate
(d) Fixed Exchange Rate System
Ans: B

Q.11 Depreciation of domestic currency leads to rise in:

(a) Exports
(b) Imports
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Ans: A

Q.12 Imports of goods and services raises the _____ of foreign exchange.

(a) Supply
(b) Demand
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Ans: B

Q.13 Flexible Exchange Rate System is also known as:

(a) Pegged Exchange Rate System

(b) Dirty Floating

(c) Floating Exchange Rate
(d) Both (b) and (c)
Ans: C

Q.14 The rate which is determined by the government is known as:

(a) flexible
(b) fixed
(c) floating exchange rate
(d) none of these
Ans: B

Q.15  The exchange rate at which demand for foreign currency becomes equal to its supply, is called
(a) equal rate of exchange
(b) mint parity
(c) equilibrium exchange rate
(d) all of these
Ans: C

Q.16 Demand for foreign currency depends upon:
(a) repayment of international loans
(b) investment in rest of the world
(c) direct foreign investment in the domestic economy
(d) both (a) and (b)
Ans: D

Q.17 Due to depreciation of foreign currency, the supply of foreign currency in domestic economy will
(a) increase
(b) not change
(c) either increase or decrease
(d) decrease
Ans: D

Q.18 When the exchange rate rises due to managed floating, it is called:

(a) devaluation
(b) appreciation
(c) depreciation
(d) revaluation
Ans: B

Q.19 Dirty floating is related to :

(a) fixed system
(b) flexible system
(c) both of these
(d) none of these
Ans: B

Q.20 A deliberate raising of price of foreign currency in terms of domestic currency by the government is: 
(a) Appreciation
(b) Devaluation
(c) Depreciation
(d) Either (b) or (c)
Ans: B

Q.21 Other things remaining the same, when foreign currency appreciates, the effect on national income of the economy is likely to be:
(a) Increase
(b) Decrease
(c) Cannot be determined
(d) No effect

Ans: B

Q.22 If Rs. 120 are required to buy $ 2, instead of Rs.100 for $ 1 earlier, then:

(a) domestic currency has appreciated
(b) domestic currency has depreciated
(c) rupee value of import bill will decrease
(d) Both (a) and (c)
Ans: D

Q.23 If Rs.150 are required to buy $ 3, instead of Rs. 80 for $ 2 earlier, then:

(a) domestic currency has depreciated
(b) domestic currency has appreciated
(c) rupee value of import bill will increase
(d) both (a) and (c)
Ans: D

- You can cover the concepts of Class 12 Macro Economics by going through the course: 

Crash Course of Macro Economics -Class 12

- You can attempt reason based & extra questions of the topic Foreign Exchange Rate here