Fixed Exchange Rate System

Q.

According to Adjustable Peg System (or Bretton Woods System) of Exchange Rate:

1. parity between two currencies was determined by the quantity of gold contained in them

2. US Dollar was assigned gold value at a fixed price

3. all of these

4. different currencies were pegged to one currency (US Dollar)

Q.

Under which system was gold taken as the common unit of parity between currencies of different countries in circulation?

1. Adjustable Peg System of Exchange Rate

2. Flexible Exchange Rate System

3. Gold Standard System of Exchange Rate

4. Bretton Woods System of Exchange Rate

Q.

Discuss some of the exchange rate arrangements that countries have entered into the bring about stability in their external accounts.

Q.

Reena a bought a house. While valuing her house, her grandmother valued it in terms of buffalo and carts.

What is the problem that is being faced in the valuation process?

(a) Lack of double coincidence of wants

(b) Lack of store of value

(c) Absence of a common unit of value

(d) Lack of standard for deferred payment

Q.

Explain the automatic mechanism by which BOP equilibrium was achieved under the gold standard.

Q.

Monetary system of exchange facilitates much greater exchange than the barter system. State true or false, and explain.

Q. All countries on the Gold Standard had exchange rates which eventually did not sustain.

1. fluctuating
2. stable
3. flexible
4. no

Q.

Explain the automatic mechanism by which BoP equilibrium was achieved under the gold standard.

Q. How is the exchange rate determined under a flexible exchange rate regime?

Q.

Out of the following, which is the most rigid exchange rate system that does not allow any adjustment in the exchange rate?

1. Flexible Exchange Rate System

2. Gold Standard System of Exchange Rate

3. Bretton Woods System of Exchange

4. Adjustable Peg System of Exchange Rate

Q. Short Answer Type Questions:
What is meant by fixed exchange rate system and flexible exchange rate system?

Q. Long Answer Type Questions :
Discuss in brief: (i) Fixed exchange rate system; (ii) Flexible exchange rate system; and (iii) Managed floating rate system.

Q. Show with the help of a diagram how exchange rate is determined under flexible exchange rate system.

Q. What is the main feature of a fixed exchange rate?

1. It is pegged at a certain level by the market
2. It is pegged at a certain level by the central bank
3. It is pegged at a certain level by the government
4. It is pegged at a certain level by individuals

Q. Short Answer Type Questions:
What are fixed and flexible exchange rates?

Q. Which of the following is the use of a currency swap?

1. Currency risk
2. Currency and interest rate risk
3. Interest rate risk
4. Cash flows in different currencies

Q. What is foreign exchange rate?

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

Q. Short Answer Type Questions:
Distinguish between fixed and flexible exchange rate.

Q. Very Short Answer Type Questions:
Give the meaning of forward exchange rate.

Q. Purchasing Power Parity theory is related with ________.

1. interest rate
2. bank rate
3. wage rate
4. exhange rate

Q. Many times we read about 'PPP' in economic literature. What is PPP?

1. Tells us the exchange rates between currencies are in equilibrium when their purchasing power is the same in both the countries
2. It tells us the exchange rates between currencies are in equilibrium when they are adjusted for differences in purchasing power.
3. A measure of income inequality in developing countries
4. PPP means the current exchange rate of a currency against US$

Q. The official exchange rate of Indian rupee is associated with ________.

1. Pound Sterling
2. Dollar
3. SDR
4. a basket of selected currencies

Q. Very Short Answer Type Questions:
What is a fixed exchange rate?

Q. _________ refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention.

1. Fixed exchange rate system
2. Floating exchange rate
3. Flexible exchange rate system
4. Managed floating rate system

Q. Very Short Answer Type Questions:
Define flexible exchange rate system.

Q. Money acts as a means of calculating relative prices of goods & services.

1. True
2. False

Q. Under flexible exchange rate system, each country fixes its value of currency in terms of some external standard.

1. True
2. False

Q. Flexible exchange rate is determined by the government.

1. True
2. False

Q. Convertibility of the rupee implies __________________.

1. allowing the value of the rupee to be fixed by market forces
2. freely permitting the conversion of rupee to other major currencies and vice versa
3. developing an international market for currencies in India
4. being able to convert rupee notes into gold

Q. Dual exchange rate was introduced in _______.

1. 1992-93
2. 1993-94
3. 1989-90
4. 1999-2000