Tag: business economics and quantitative methods

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Questions Related to business economics and quantitative methods

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

Flexible exchange rate system is also known as __________. 

  1. pegged exchange rate system

  2. dirty floating

  3. floating exchange rate

  4. both B and C
Reveal answer Fill a bubble to check yourself
C Correct answer
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.

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

Devaluation of currency means ____________________.

  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)
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

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

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

  1. Balanced

  2. Surplus

  3. Deficit

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When receipts (inflows) exceed payments (outflows) of foreign exchange, the balance of payments is in a surplus state. A deficit occurs when payments exceed receipts.

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

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

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A rise in the supply of a currency, while demand remains constant, leads to a decrease in its value, which is known as depreciation, not appreciation.

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

An increase in demand for imported goods raises the demand for foreign exchange. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Importing goods requires paying in foreign currency. Therefore, an increase in demand for imports directly increases the demand for foreign exchange to settle those payments.

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

Under managed floating rate system, central bank maintains reserves of foreign exchange. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In a managed floating system, the central bank intervenes in the foreign exchange market to stabilize the currency by buying or selling foreign exchange reserves.

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

Devaluation and depreciation of currency are one and the same thing. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Devaluation is reduction in value of domestic currency by the government under fixed exchange rate system.It is a deliberate effort. On the other hand,
Depreciation is decrease in value of domestic currency due to market forces of demand and supply under flexible exchange rate system. 

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

Under flexible exchange rate system, each country fixes its value of currency in terms of some external standard. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This happens in case of fixed exchange rate system.
 Under Flexible exchange rate system, value of currency is determined by the market forces of demand and supply. 

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

Demand for American goods will rise in India due to appreciation of Indian currency.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Demand for American goods will rise in India due to appreciation of Indian currency. Appreciation of domestic currency is a situation of a fall in exchange rate, i.e, less rupees are needed to buy one dollar. Thus, making American goods cheaper and leading to an increase in their demand.

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

Foreign exchange transactions dependent on other foreign exchange transactions are called ________________.

  1. Current Account Transactions

  2. Capital Account Transactions

  3. Autonomous Transactions

  4. Accommodating Transaction
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accommodating transactions are those undertaken to cover the deficit or surplus in the balance of payments, making them dependent on the autonomous transactions that created the imbalance.