Deck 6: Foreign Exchange and Exchange Rates

Question 1

The supply of foreign exchange comes from..

A)the foreigners purchasing home country's goods and services through exports
B)the foreigners who invest in home country through joint ventures or through financial market operations
C)currency dealers and speculators.
D)all of them

Answer 1

all of them

Question 2

Buyers and sellers of foreign exchange are

A)central banks
B)commercial banks
C)brokers
D)all of them

Answer 2

all of them

Question 3

Which exchange rate measures the average relative strength of a given currency with respect to other currencies without eliminating the effect of change in price?

A)Nominal exchange rate
B)Nominal effective exchange rate
C)Real exchange rate
D)Real effective exchange rate

Answer 3

Real effective exchange rate

Question 4

When one country manipulates exchange rate against the interest of other country, is known as

A)managed floating
B)dirty floating
C)wide band
D)crawling peg

Question 5

Other things remaining the unchanged, when in a country the price of foreign currency rises, national income is:

A)Likely to rise
B)Likely to fall
C)Likely to rise or to fall
D)Not affected

Question 6

Other things remaining the same, when in a country the market price of foreign currency falls, national income is likely

A)to rise
B)to fall
C)to rise or to fall
D)to remain unaffected

Question 7

Devaluation which means fall in value of domestic currency in terms of foreign currency takes place in

A)Flexible Exchange Rate regime
B)Fixed Exchange Rate regime
C)Both (a) and (b)
D)Neither

Question 8

A change from Rs. 60 = 1 dollar to Rs 62 = dollars indicates that Rs has

A)Appreciated
B)Depreciated
C)Neither
D)Either a or b

Question 9

The larger fluctuations in portfolio value of foreign exchange of financial institutions leads to

A)greater liquidity of assets
B)greater volatility of rates
C)lesser volatility of rates
D)lesser liquidity of assets

Question 10

Other things remaining unchanged, when in a country the price of foreign currency rises, national income is

A)Likely to rise
B)Likely to fall
C)both
D)Not affected

Question 11

Indirect quotation is also known as

A)home currency quotation
B)foreign currency quotation
C)European quotation
D)American quotation

Question 12

If rupee is getting depreciated fast and is considered undesirable by the government, the RBI may be advised to

A)Sell dollars in the foreign exchange market
B)Purchase dollars
C)Print more currency notes
D)Raise tariffs on imports

Question 13

If in an effort to control depreciation of rupee the RBI puts more dollars in the supply, it may lead to greater inflation, caused by

A)Increase in money supply in the economy
B)Reduced availability of goods due to increased exports.
C)Reduced availability of goods due to reduced imports
D)All of the above.

Question 14

In which of the following items raises the supply of foreign exchange ?

A)Import of goods from China
B)Indian students going to USA for MBA
C)Donation of 50 million $ received from Microsoft
D)Purchase of land in England

Question 15

A change from Rs. 140 = 2 £ to Rs. 60 = 1 £ indicates that Rs. is

A)Appreciated
B)Depreciated
C)Neither
D)Either (a) or (b)

Question 16

Depreciation of domestic currency leads to rise in:

A)Exports
B)Imports
C)Both (a) and (b)
D)Neither (a) nor (b)

Question 17

Flexible Exchange Rate System is also known as:

A)Pegged Exchange Rate System
B)Dirty Floating
C)Floating Exchange Rate
D)Both (b) and (c

Question 18

The rate which is determined by the government is known as:

A)flexible
B)fixed
C)floating exchange rate
D)none of these

Question 19

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

A)equal rate of exchange
B)mint parity
C)equilibrium exchange rate
D)all of these

Question 20

Demand for foreign currency depends upon:

A)repayment of international loans
B)investment in rest of the world
C)direct foreign investment in the domestic economy
D)both (a) and (b)

Question 21

In a flexile exchange rate regime

A)central government control the rate
B)state government control the rate
C)government do not have any intervention
D)central bank control the rate

Question 22

Foreign exchange transactions involve monetary transactions

A)among residents of the same country
B)between residents of two countries only
C)between residents of two or more countries
D)among residents of at least three countries

Question 23

Paper currency was used for internal use and gold was used for international settlement under standard

A)IMF
B)gold bullion
C)fixed
D)floating

Question 24

A foreign currency account maintained by a bank abroad is its

A)nostro account
B)vostro account
C)loro account
D)foreign bank account

Question 25

The statutory basis for administration of foreign exchange in India is

A)Foreign Exchange Regulation Act, 1973
B)Conservation of foreign Exchange and Prevention of Smuggling Act.
C)Foreign Exchange Management Act, 1999
D)Exchange Control Manual