Flexible Exchange Rate System

Q.

What is the relationship between the demand for foreign exchange and exchange rate?

1. Inverse

2. No relationship

3. One to one

4. Direct

Q. Flexible exchange rate system is also called:

1. Free Exchange Rate System
2. Floating Exchange Rate System
3. Dirty Floating Exchange Rate System
4. None of the above

Q.

What is hedging?

Q.

What is the relationship between supply of foreign exchange and exchange rate?

1. No relationship

2. One to one

3. Direct

4. Inverse

Q.

What are autonomous items?

Q. The exchange rate at which demand for foreign currency becomes equal to its supply is called the exchange rate.

1. unequal
2. equilibrium
3. equal
4. flexible

Q.

The exchange rate at which demand for foreign currency becomes equal to its supply is called:

1. Unequal rate of exchange

2. All of these

3. Equilibrium exchange rate

4. Equal rate of exchange

Q.

Would the central bank need to intervene in a managed floating system? Explain.

Q. A flexible exchange rate system uses the invisible hand dynamics. State true or false.

1. True
2. False

Q. The average revenue curve of a firm under monopolistic competition is __________________.

1. None of the above of a monopoly firm
2. Perfectly elastic
3. Rigidly elastic
4. Lesser steepness than

Q. Increase in foreign exchange rate leads to rise in supply of foreign exchange.

1. True
2. False

Q.

What happens when a market is in equilibrium?

Q. Supply curve of foreign exchange ____________________.

1. Vertical straight line parallel to Y-axis
2. Slope downwards
3. Slope upwards
4. Horizontal straight line parallel to X-axis

Q. Other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be:

1. Positive
2. Negative
3. Positive and negative both
4. No effect

Q. When supply curve moves to right means.

1. Supply increase
2. Supply decreases
3. Supply remains constant
4. None of these

Q. Short Answer Type Questions:
Give two reasons for rise in demand for a foreign currency when its price falls.

Q. Visits to foreign countries for sightseeing etc. by the people of India is on the rise. What will be its likely impact on foreign exchange rate and how?

Q. Authorized dealers for foreign exchange transactions are appointed by ______.

1. FEDAI
2. Reserve Bank of India
3. Government of India
4. individual banks

Q. Very Short Answer Type Questions:
Why does supply curve of foreign exchange slope upwards?

Q. Long Answer Type Questions :
"Equilibrium rate of exchange is determined when the demand for foreign exchange is equal to its supply." Explain this statement,

Q. A surge in foreign capital inflows in India would lead to the ______________________.

1. Sale of foreign exchange by the central bank in order to prevent depreciation of rupee.
2. Purchase of foreign exchange by the central bank in order to prevent depreciation of the rupee.
3. Sale of foreign exchange by the central bank to prevent the appreciation of the rupee.
4. Purchase of foreign exchange by the central bank in order to prevent appreciation of the rupee.

Q. An income-demand curve for a 'luxury commodity' slopes _____________.

1. vertically
2. upwards to the right from the origin
3. upwards from left to right only beyond a certain level of consumer's income
4. horizontally

Q. Other things remaining the same, when in a country the market price of foreign currency falls, national income is likely :
(Choose the correct alternative)

1. to rise
2. to fall
3. to rise or to fall
4. to remain unaffected

Q. Very Short Answer Type Questions:
Give meaning of managed floating exchange rate.

Q. Which of the following helps a Government frame its monetary and fiscal policies to enhance the economic growth of the economy and achieve a favourable foreign exchange rate?

1. Balance of Payment
2. Balance Sheet
3. Capital Account
4. Current Account

Q. Position of the price line would ________ with a change in the money income of the consumer.

1. not change
2. change
3. depend on other factors
4. none of the above

Q. Short Answer Type Questions:
When price of a foreign currency rises, its supply also rises. Explain why.

Q. Very Short Answer Type Questions:
How is equilibrium exchange rate determined in the foreign exchange market?

Q. Match the items of List-I with those in List-II and select the correct code for the answer:

List-I	List-II
(a) Contraction of Demand	(i) Non-Price change effect
(b) Decrease in Demand	(ii) Demand curve remains the same
(c) Increase in Demand	(iii) Price change effect
(d) Expansion of Demand	(iv) Shifts the Demand curve

1. $\left(a\right)-\left(iv\right),\left(b\right)-\left(iii\right),\left(c\right)-\left(ii\right),\left(d\right)-\left(i\right)$
2. $\left(a\right)-\left(i\right),\left(b\right)-\left(ii\right),\left(c\right)-\left(iii\right),\left(d\right)-\left(iv\right)$
3. $\left(a\right)-\left(ii\right),\left(b\right)-\left(iv\right),\left(c\right)-\left(i\right),\left(d\right)-\left(iii\right)$
4. $\left(a\right)-\left(iii\right),\left(b\right)-\left(i\right),\left(c\right)-\left(iv\right),\left(d\right)-\left(ii\right)$

Q. Flexible exchange rate system is also known as __________.

1. dirty floating
2. pegged exchange rate system
3. floating exchange rate
4. both B and C