Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods

What is the main feature of a 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. Determined by forces of market supply

  2. Determined by forces of market demand

  3. Both A and B

  4. None of the above

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Correct Option: C
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.  

India devalued Rupee for the first time in ________.

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

  1. 1940

  2. 1966

  3. 1956

  4. 1991

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Correct Option: B
Explanation:

Facing high inflationary pressures and large government deficits the rupee was devalued in 1966 for the first time.

Foreign investments includes _______.

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

  1. foreign direct investments

  2. portfolio investments

  3. foreign institutional investments

  4. all the three

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Correct Option: D

Devaluation of currency means a ________.

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

  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

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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. 

In what way devaluation helps a country?

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

  1. Improvement in Balance of Payment situation

  2. Encourages exports

  3. Discourages imports

  4. All the three

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Correct Option: D
Explanation:

A devaluation of the currency may help improve the balance of payments situation when it is in a deficit, as a devaluation makes it attractive to purchase domestic goods as it becomes relatively cheaper to do so thus the value of imports is likely to decrease and the value of exports is likely to increase. 

Which of these measures is / are essential to make devaluation successful?

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

  1. Export performance of exporting units should be strengthened

  2. Export quality should be improved

  3. Domestic prices should be checked

  4. All the three

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Correct Option: D

SDR stands for ______.

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

  1. Small Denomination Receipts

  2. Special Drawing Rights

  3. Silver Deposit Receipts

  4. Special Deposit Receipts

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Correct Option: B

Depreciation of currency means a  ________.

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

  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 external value / exchange value due to wear and tear

  4. all the three

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Correct Option: A
Explanation:

When a country follows a floating exchange rate regime, it is possible for the currency to fall in value due to a fall in demand for the currency that can be caused for a variety of reasons like decline of demand for the country's exports or attractive investment opportunities abroad.

Dual exchange rate was introduced in _______.

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

  1. 1992-93

  2. 1989-90

  3. 1999-2000

  4. 1993-94

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Correct Option: A
Explanation:

According to the RBI "The Liberalised Exchange Rate Management System (LERMS) was put in place in March 1992 involving the dual exchange rate system in the interim period. The dual exchange rate system was replaced by a unified exchange rate system in March 1993".

FERA was replaced by ________.

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

  1. FEMA

  2. FEMINA

  3. FENA

  4. FIFA

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Correct Option: A
Explanation:

In 1999 the Foreign Exchange Management Act replaced the Foreign Exchange Regulation Act. This act makes offences related to foreign exchange civil offences.