Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods

By devaluation we mean ___________________.

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

  1. a fall in the external value of a currency caused by central bank action

  2. a fall in the external value of a currency caused by the market forces

  3. a fall in the external value of a currency caused by Government action

  4. none of the above

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Correct Option: A
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. 

A surge in foreign capital inflows in India would lead to the ______________________.

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

  1. Sale of foreign exchange by the central bank in order to prevent depreciation of rupee

  2. Purchase of foreign exchange by the central bank in order to prevent depreciation of the rupee

  3. Sale of foreign exchange by the central bank to prevent the appreciation of the rupee

  4. Purchase of foreign exchange by the central bank in order to prevent appreciation of the rupee

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Correct Option: D

Purchasing Power Parity theory is related with ________.

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

  1. interest rate

  2. bank rate

  3. wage rate

  4. exhange rate

Show answer
Correct Option: D
Explanation:
The acronym PPP stands for, "Purchasing Power Parity". It is a method of currency valuation that tells us that the exchange rate between two countries must be equal to the ratio of the currencies' respective purchasing power, i.e., two identical goods should eventually cost the same in different countries once adjusted for purchasing power parity.

What is the meaning of devaluation of money?

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

  1. Decrease in the internal value of money

  2. Decrease in the external value of money

  3. Decrease in both internal and external values of money

  4. The government takes back currency notes of any denomination

Show answer
Correct Option: B
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. 

The first public issuance of a company's shares to investors on a stock exchange to raise capital is 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. Initial public offer

  2. follow-up offer

  3. mutual fund

  4. hedge fund

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Correct Option: A
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.

What is the main feature of a fixed 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. 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

Show answer
Correct Option: D
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.

Which country follows a fixed 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. India

  2. USA

  3. UK

  4. Cuba

Show answer
Correct Option: D
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. 

Which country follows an 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. Cuba

  2. Dijibouti

  3. Eritrea

  4. USA

Show answer
Correct Option: D
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.  

What is Forex?

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

  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.

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Correct Option: D

What is foreign 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. 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

Show answer
Correct Option: A
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)