Tag: balance of payments

Quizzes (1) Questions (59)

Questions Related to balance of 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

A change from $Rs.140 = 2$ pounds to $Rs. 60 = 1$ pounds indicates that Rs. is:

  1. Appreciating

  2. Depreciating

  3. Neither (a) nor (b)

  4. Either (a) or (b)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A change from RS 140 = 2 pounds to Rs 60 = 1 pounds indicates that rupees is appreciating. Appreciation of domestic currency is a situation of a fall in exchange rate. Less rupees are needed to buy one pound.

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

Appreciation of Indian rupees will occur when $Rs. 45$ have to be paid to exchange one $US $ $ instead of present rate of $Rs. 40/$ $. 

  1. True

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

In case of appreciation, lesser rupees have to be paid to exchange one US dollar, i.e. less than $Rs. 40/$ $

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 the following items raises the supply of foreign exchange?

  1. Import of goods from China

  2. Indian students going to USA for MBA
  3. Donation of 50 million $ $ $ received from Microsoft

  4. Purchase of land in England
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The supply of foreign exchange increases when foreign currency enters the domestic economy. Receiving a donation from abroad is an inflow of foreign currency, whereas imports, student expenses, and purchasing foreign assets are outflows that increase demand for foreign exchange.

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 domestic currency leads to rise in _____________.

  1. Exports

  2. Imports

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Currency depreciation makes domestic goods relatively cheaper for foreign buyers, which increases the demand for domestic products abroad, leading to a rise in exports.

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.