Tag: balance of payments and exchange rate

Quizzes (1) Questions (59)

Questions Related to balance of payments and exchange rate

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

The first public issuance of a company's shares to investors on a stock exchange to raise capital is known as ________.

  1. Initial public offer

  2. follow-up offer

  3. mutual fund

  4. hedge fund
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When the firm decides to operate as a public limited company, the firm will need to offer a portion of its total shares to the public for the first time. This is known as an initial public offering.

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 fixed exchange rate?

  1. It is pegged at a certain level by the market

  2. It is pegged at a certain level by the government

  3. It is pegged at a certain level by individuals

  4. It is pegged at a certain level by the central bank
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In a fixed rate system, the price of the domestic currency in international markets is purely determined by the central bank of the country. It is pegged bilaterally and is artificially maintained at that level by the central bank. It is not allowed to appreciate and depreciate as per the market conditions, the central bank will intervene using forex reserves and hold the exchange rate at the pegged amount.

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 country follows a fixed exchange rate system?

  1. India

  2. USA

  3. UK

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

In a fixed rate system, the price of the domestic currency in international markets is purely determined by the central bank of the country. It is not allowed to appreciate and depreciate as per the market conditions, the central bank will intervene using forex reserves and hold the exchange rate at the pegged amount  The Banco Central De Cuba does intervene in the forex market for the Cuban peso and it is classified as a fixed 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

Which country follows an flexible exchange rate system?

  1. Cuba

  2. Dijibouti

  3. Eritrea

  4. USA
Reveal answer Fill a bubble to check yourself
D 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

What is Forex?

  1. It is buying of foreign currency.

  2. It is selling of foreign currency.

  3. It is buying of one currency and selling of another currency.

  4. It is simultaneous buying of one currency and selling of another currency.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Forex (Foreign Exchange) market involves the simultaneous buying of one currency and selling of another to facilitate international trade and investment.

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 foreign exchange rate?

  1. The price of one currency in term of another

  2. Price of one quantity in terms of another

  3. Price of one currency in terms of another economies price

  4. Price of one economies price in terms of another economies currency
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The foreign exchange rate of a currency is the price of a currency in terms of another, as it refers to the rate at which the currencies of different countries are traded or exchanged. The exchange rate can be expressed in either of the two ways, (i) the number of units of the domestic currency that exchanges for one unit of the foreign currency (eg. INR 68.54 for USD 1 ) or (ii) the number of units of the foreign currency that exchange for one unit of the domestic currency. (USD 0.015 to INR 1)

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.