Sandeep Garg Macroeconomics Class 12 - Chapter 11: Foreign Exchange Rates

Sandeep Garg Class 12 Macroeconomics Solutions Chapter 11: Foreign Exchange Rates is explained by expert economics teachers from the latest edition of Sandeep Garg Macroeconomics Class 12 textbook solutions. 

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Also read: Foreign Exchange Market

Sandeep Garg Solutions Class 12 – Chapter 11 – Part B

Question 1

What is foreign exchange?

Answer:

Foreign exchange refers to all the currencies other than the domestic currency of a given country.

Question 2

Mention the effects of exchange depreciation on exports.

Answer:

Currency/exchange depreciation leads to an increase in exports.

Additional reading: Determination of the Exchange Rate

Question 3

State the three functions of the foreign exchange market.

Answer:

The three functions of the foreign exchange market are as follows:

•     Transfer function
•     Credit function
•     Hedging function

Question 4

What is meant by the spot exchange rate?

Answer:

The rate of exchange that prevails in the spot market at the time when a foreign currency is bought and sold is known as the spot exchange rate.

Question 5

Define the foreign exchange market.

Answer:

The foreign exchange market is the market where foreign currencies are bought and sold.

Explore link: Government Budget and the Economy

Question 6

What is the shape of the demand curve of foreign exchange?

Answer:

The demand curve is downward sloping due to the inverse relationship between the exchange rate and the demand for foreign exchange.

Question 7

What does the forward exchange rate mean?

Answer:

The exchange rate quoted in the forward transaction is known as the forward exchange rate.

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