Demand and Supply of Foreign Exchange

Q.

How does appreciation and depreciation of currency affect exports and imports?

Q.

'Devaluation and depreciation of currency are one and the same thing'. Do you agree? How do they affect the exports of a country?

Q.

Supply of foreign currency depends upon:

1. exports of the country

2. remittances by non-residents living in rest of the world

3. direct purchases by rest of the world

4. all of these

Q.

Demand for foreign currency depends upon:

1. both (a) and (b)

2. direct foreign investment in the domestic economy

3. investment in rest of the world

4. repayment of international loans

Q.

Indian Rupee has been depreciating in recent times.

What effect will it have on the CAD?

Q.

Unilateral transfer payments are a source of:

1. Demand for foreign exchange

2. Supply of foreign exchange

3. Neither a nor b

4. Both a and b

Q.

If Rs 150 are required to buy $2, instead of Rs 100 earlier, then:

1. domestic currency has depreciated

2. rupee value of import bill will increase

3. domestic currency has appreciated

4. both depreciation of the domestic currency and rise in the import bill occur

Q.

Which of the following functions are performed in a foreign exchange market?

1. Hedging function

2. Transfer function

3. All of these

4. Credit function

Q.

Calculate value added from the following data:

$\begin{array}{cc}\text{Items}& \text{(Rs. in crore)}\\ \text{(i) Purchase of machinery}& \\ \text{to be used in the production unit}& 100\\ \text{(ii) Sales}& 200\\ \text{(iii) Intermediate costs}& 90\\ \text{(v) Change in stocks}& 10\\ \text{(vi) Excise duty}& 6\\ \text{(vii) Stock of raw material}& 5\end{array}$

Q. There exists relationship between the demand for foreign exchange and exchange rate.

1. no
2. an inverse
3. a direct
4. a one to one

Q.

Direct foreign investment is a source of:

1. none of these

2. both (a) and (b)

3. supply of foreign exchange

4. demand for foreign exchange

Q.

State any two factors that explain the contraction of supply of foreign currency when its price in terms of the domestic currency falls.

Q.

If 120 Rupees are required to buy 2 dollars instead of 100 Rupees for 1 dollar earlier, then:

1. both (a) and (c)

2. rupee value of import bill will decrease

3. domestic currency has depreciated

4. domestic currency has appreciated

Q. A country can make its exports to foreign countries cheaper with which of the following methods?
[Pick up the correct statement(s).]
A. Reducing their domestic prices
B. Reducing the foreign exchange rate on its money (devaluing currency)
C. Putting a ban on import of foreign goods

1. Only (A)
2. Only (B)
3. Both (B) and (C)
4. Both (A) and (B)

Q. Short Answer Type Questions:
Give the meaning of foreign exchange rate. How is it determined under flexible exchange rate regime?

Q.

If the exchange rate changes from 1$=Rs.100to0.5$= Rs. 50, which of the following has occurred for the rupee?

1. None of the above

2. Devaluation

3. Revaluation

4. Depreciation

5. Appreciation

Q. When India became Independent, it was a _________ economy.

1. highly developed
2. highly backward
3. developing
4. moderately developed

Q. Very Short Answer Type Questions:
Name the market exchange rate system in which the Central Bank can actively intervene.

Q. Very Short Answer Type Questions:
What is meant by foreign exchange market?

Q. Short Answer Type Questions:
What is meant by foreign exchange rate? Why does a rise in foreign exchange rate cause a rise in its supply?

Q. Very Short Answer Type Questions:
State the three functions of foreign exchange market.

Q. We very frequently read about the activities of the Foreign Exchange Market in newspapers/magazines. Which of the following is/are the major functions of the same?
A. Transfer of purchasing power from domestic to foreign market
B. Providing credit for financing foreign trade
C. Power to purchase gold from foreign countries, as most of the nations still work on Gold Standards

1. Only (B)
2. Only (A)
3. Only (C)
4. Both (A) and (B) only

Q. Very Short Answer Type Questions:
State two sources of supply of foreign currency.

Q. Foreign direct invest helped India in ___________.

1. exports
2. all of the above
3. imports
4. import of money from outside

Q. Explain the effect of depreciation of domestic currency on exports?

Q. Which country follows an flexible exchange rate system?

1. Cuba
2. Dijibouti
3. Eritrea
4. USA

Q. Montagu who toured in India in $1918$ was a ____.

1. Member of Privy Council
2. Member of Viceroy's Council
3. Secretary of State for India
4. Viceroy of India

Q. Long Answer Type Questions :
Explain the distinction between the flexible exchange rate and the managed floating exchange rate.

Q.

how does increase in foreign direct investment affect price of exchange rate

Q. What is the relation between appreciation of domestic currency with the supply and demand for foreign exchange