Tag: balance of payments and exchange rate

Questions Related to balance of payments and exchange rate

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.

FERA 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. Foreign Export Revaluation Act

  2. Funds Exchange Resources Act

  3. Finance and Export Regulation Association

  4. Foreign Exchange Regulation Act

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Correct Option: D
Explanation:

FERA stands for Foreign Exchange Regulation Act, 1973.

India has achieved full convertibility of the Rupee 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. current account

  2. capital account

  3. both (a) and (b)

  4. neither (a) nor (b)

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Correct Option: A

In commodity exchanges in India, Index Futures are not permitted, as some of the provisions of the FCRA do not allow the same. What is the full form of FCRA?

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 Commodities Regulation Act

  2. Forward Commodities Repurchasing Act

  3. Forward Contracts Regulation Act

  4. Financial Contracts Reformation Act

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Correct Option: C
Explanation:

The full form of FCRA is Forward Contracts Regulations Act . 


In 1952 , FCRA act was enacted to provide for the regulation of certain matters relating to forward contracts , the prohibition of options in goods and for matters connected therewith.

Forward contract is a contract between two parties to buy or sell an asset at a specified future time at a price agreed up on today. Index futures are contracts based on a financial index , which can be bought or sold for speculative or hedging reasons , or for future delivery.