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

What is the main feature of a flexible exchange rate system?

  1. Determined by forces of market supply

  2. Determined by forces of market demand

  3. Both A and B

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In a flexible rate system, the price of the domestic currency in international markets is purely determined by the market forces of supply and demand. It is allowed to appreciate and depreciate as per the market conditions, without intervention by the central bank. The Federal Reserve does not intervene in the forex market for the US dollar and it is classified as a freely floating currency.  

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 investments includes _______.

  1. foreign direct investments

  2. portfolio investments

  3. foreign institutional investments

  4. all the three
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Foreign investment is a broad category that encompasses Foreign Direct Investment (FDI), Portfolio Investment, and Foreign Institutional Investment (FII).

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 a ________.

  1. fall in exchange value of a country by market forces

  2. reduction in external value /exchange value of currency by the Government

  3. reduction in currency value due to wear and tear

  4. all the three
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When the country follows a fixed exchange rate regime the government constantly has to revalue and devalue the currency in order to maintain the pegged exchange rate. When there is upwards market pressure on the currency to appreciate, the central bank will artificially devalue the currency by buying up foreign 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

In what way devaluation helps a country?

  1. Improvement in Balance of Payment situation

  2. Encourages exports

  3. Discourages imports

  4. All the three
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A devaluation of the currency may help improve the balance of payments situation when it is in a deficit, as a devaluation makes it attractive to purchase domestic goods as it becomes relatively cheaper to do so thus the value of imports is likely to decrease and the value of exports is likely to increase. 

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

Which of these measures is / are essential to make devaluation successful?

  1. Export performance of exporting units should be strengthened

  2. Export quality should be improved

  3. Domestic prices should be checked

  4. All the three
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For devaluation to be successful, the country must be able to export more (improved performance and quality) and keep domestic inflation in check so that the price advantage is not lost.

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

SDR stands for ______.

  1. Small Denomination Receipts

  2. Special Drawing Rights

  3. Silver Deposit Receipts

  4. Special Deposit Receipts
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

SDR stands for Special Drawing Rights, which is an international reserve asset created by the International Monetary Fund (IMF).

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

Depreciation of currency means a  ________.

  1. fall in exchange value of a country by market forces

  2. reduction in external value/exchange value of currency by the Government

  3. reduction in external value / exchange value due to wear and tear

  4. all the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When a country follows a floating exchange rate regime, it is possible for the currency to fall in value due to a fall in demand for the currency that can be caused for a variety of reasons like decline of demand for the country's exports or attractive investment opportunities abroad.

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

Dual exchange rate was introduced in _______.

  1. 1992-93

  2. 1989-90

  3. 1999-2000

  4. 1993-94
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the RBI "The Liberalised Exchange Rate Management System (LERMS) was put in place in March 1992 involving the dual exchange rate system in the interim period. The dual exchange rate system was replaced by a unified exchange rate system in March 1993".