Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods

Huge international reserves are required to be maintained by the government in fixed and flexible exchange rate system. 

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

Show answer
Correct Option: B
Explanation:
Fixed exchange rate system is always supported with huge reserves of gold because foreign currencies are convertible to gold.
But 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' as it is determined by the free play of supply and demand forces in the international money market.

Increase in foreign exchange rate leads to rise in supply 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

Show answer
Correct Option: A
Explanation:

The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example, exports rise as the foreign exchange rate rises.

Flexible exchange rate is determined by the government. 

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

Show answer
Correct Option: B
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' as it is determined by the free play of supply and demand forces in the international money market.

_________ refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention.

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

  1. Flexible exchange rate system

  2. Managed floating rate system

  3. Floating exchange rate

  4. Fixed exchange rate system

Show answer
Correct Option: B
Explanation:

Managed floating is a tool employed by the Central bank to restore the value of the country's currency in relation to other countries within the desired limits, even when the exchange rate is determined by the market forces of demand and supply.

Supply curve 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. Horizontal straight line parallel to X-axis

  2. Vertical straight line parallel to Y-axis

  3. Slope downwards

  4. Slope upwards

Show answer
Correct Option: D
Explanation:

The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example exports rise as the foreign exchange rate rises.

Other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be: 

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

  1. Positive

  2. Negative

  3. Positive and negative both

  4. No effect

Show answer
Correct Option: B
Explanation:

Price of foreign exchange and growth of national income is directly related. When foreign currency becomes cheaper, it indicates that demand of foreign exchange is higher than the supply of foreign exchange. Hence, other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be negative.

The value of US Dollar $ $1$ has gone down from $Rs. 67$ to $Rs. 65$. It means that ________________.

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

  1. Indian rupee has appreciated

  2. US Dollar has depreciated

  3. Both (a) and (b)

  4. None of the above

Show answer
Correct Option: C
Explanation:

Depreciation of US dollar will occur when Rs 65 have to be paid to exchange one US Dollar instead of Rs 67 per dollar as less rupees are needed to buy one dollar. Whereas, Indian rupee has appreciated as it is a situation of rise of foreign exchange rate.

Value of the Indian currency to a currency of another country shows the concept of the exchange rate.

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

Show answer
Correct Option: A

Many a time we read in financial newspapers a term/name NMCEX. What is the full form of the same?

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

  1. New Multi Capital Exchange

  2. National Medium Commodity Exchange

  3. National Multi-Commodity Exchange

  4. Net Marketable Commodity Exchange

Show answer
Correct Option: C
Explanation:

The acronym NMCEX stands for National Multi-Commodity Exchange. The NMCEX merged with the Indian Commodity Exchange, (ICEX) in 2017. The combined exchange is India's third-largest commodities market.

Which of the following policies of the financial sector is basically designed to transfer local financial assets into foreign financial assets freely and at market determined exchange rates?
Policy of

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

  1. Capital Account Convertibility

  2. Financial Deficit Management

  3. Minimum Support Price

  4. Restrictive Trade practices

Show answer
Correct Option: A