Question 1

Coverage of risks due to fluctuating exchange rates is known as ---------

Accepted Answer

Hedging is the practice of taking a position in one market to offset and balance against the risk adopted by assuming a position in a contrary or opposing market or investment. In the context of fluctuating exchange rates, hedging is used to reduce or limit the risk associated with currency movements.

Question 2

The demand for foreign exchange is determined by country's ------------

Accepted Answer

The demand for foreign exchange is primarily determined by a country's imports, as foreign currency is needed to pay for goods and services purchased from abroad.

Question 3

Purchasing power purity theory was introduced by ------------

Accepted Answer

Purchasing Power Parity (PPP) theory was introduced by Swedish economist Gustav Cassel in 1916. It explains that in the long run, exchange rates should adjust to equalize the price of identical goods and services in different countries.

Question 4

EURO is the currency of ----------------

Accepted Answer

The Euro (€) is the official currency of 19 out of the 27 European Union countries. These countries together are known as the Eurozone.

Question 5

The currency of Italy is ----------------

Accepted Answer

Italy adopted the Euro (EUR) as its official currency in 1999, replacing the Italian Lira.

Question 6

The rate at which the exchange dealer is ready to buy a currency as known as ----------------

Accepted Answer

The bid rate is the price at which the exchange dealer is willing to buy a currency. It represents the maximum price that a buyer is willing to pay for a currency.

Question 7

The members of the IMF are the members of --------------

Accepted Answer

The members of the International Monetary Fund (IMF) are also members of the International Bank for Reconstruction and Development (IBRD), which is part of the World Bank Group. Membership in the IMF is a prerequisite for joining the IBRD.

Question 8

World Bank is also known as --------------------

Accepted Answer

The World Bank is commonly referred to as the International Bank for Reconstruction and Development (IBRD), which is one of its primary institutions.

Question 9

Balance of Trade is a ----

Accepted Answer

Balance of Trade is considered a flow concept because it measures the difference in value between a country's exports and imports over a specific period of time, typically a year.

Question 10

Which one of the following items in the balance of payments is invisible

Accepted Answer

The answer of Which one of the following items in...

Question 11

Gold standard is an example of

Accepted Answer

The gold standard is an example of a fixed exchange rate system, where the value of a country's currency is directly linked to a specified amount of gold.

Question 12

Flexible exchange rate is based on the concept of

Accepted Answer

Flexible exchange rates are determined by the forces of demand and supply in the foreign exchange market.

Question 13

A BOP surplus can be corrected through --------------

Accepted Answer

Appreciation of the currency makes exports more expensive and imports cheaper, which can help reduce a balance of payments surplus by decreasing export demand and increasing import demand.

Question 14

BOP deficit can be corrected through --------------

Accepted Answer

Increasing exports will increase the inflow of foreign exchange and reduce the BOP deficit.

Question 15

Foreign exchange is demanded by -------------

Accepted Answer

Foreign exchange is demanded by importers to pay for goods and services purchased from foreign countries.

Question 16

Devaluation will improve when elasticity of demand of country's export and import is

Accepted Answer

Devaluation will improve a country's trade balance when the elasticity of demand for both its exports and imports is greater than one. This is because, with elastic demand, the percentage change in quantity demanded is greater than the percentage change in price, leading to an increase in the total value of exports or a decrease in the total value of imports.

Question 17

Deficit BOP can be solved by --------------------

Accepted Answer

Deficit in the Balance of Payments (BOP) can be addressed through both expenditure switching policies (which alter the composition of domestic versus foreign goods) and expenditure reducing policies (which aim to reduce the overall level of spending), thus making option C correct.

Question 18

Floating exchange rate become common in ----------------

Accepted Answer

Floating exchange rates became common in the 1970s, following the collapse of the Bretton Woods system, which had fixed exchange rates.

Question 19

The difference between the value of goods and services exported and imported is called -------------

Accepted Answer

The difference between the value of goods and services exported and imported is called the Balance of Trade (BOT).

Question 20

The convertibility of dollar was formally abandoned in ---------------

Accepted Answer

The convertibility of the dollar was formally abandoned in 1971, marking the end of the Bretton Woods system and leading to the transition to floating exchange rates.

Quiz 1: Insurance Types and Terms