Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods

Flexible exchange rate system is also known as __________. 

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

  1. pegged exchange rate system

  2. dirty floating

  3. floating exchange rate

  4. both B and C

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Correct Option: C
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.

Devaluation of currency means ____________________.

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

  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)

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Correct Option: B
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.

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

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

  1. Balanced

  2. Surplus

  3. Deficit

  4. None of these

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Correct Option: B

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

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

  1. True

  2. False

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Correct Option: B

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

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

  1. True

  2. False

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Correct Option: A

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

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

  1. True

  2. False

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Correct Option: A

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

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

  1. True

  2. False

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Correct Option: B
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. 

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

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

  1. True

  2. False

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Correct Option: B
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. 

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

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

  1. True

  2. False

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Correct Option: A
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.

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

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

  1. Current Account Transactions

  2. Capital Account Transactions

  3. Autonomous Transactions

  4. Accommodating Transaction

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Correct Option: D