Balance Of Payments/Foreign Exchange Rate - Test 6

Welcome to Balance Of Payments/Foreign Exchange Rate - Test 6

Q1. _______________ links the currencies of different countries and enables comparison of international costs and prices.

Q2. Under which exchange rate system, official reserve transactions are equal to zero?

a) Fixed exchange rate system

b) Flexible exchange rate system

c) Managed floating exchange rate system

d) None of the above

Q3. Our country needs a huge amount of imports for development. How can Central Bank make the imports cheaper by entering into forex market?

a) Sell the foreign exchange in the forex market

b) Buy the foreign exchange in the forex market

c) Both buy and sell the foreign exchange in the forex market

d) None of the above

Q4. What will be the effect of increase in national income in abroad on foreign exchange rate?

a) Exchange rate will fall

b) Exchange rate will rise

c) Exchange rate may fall or rise

d) No effect on the exchange rate

Q5. A British company has ordered ready-made garments from an Indian company. What will be the impact on their total import expenditure if the exchange rate rises?

a) Import expenditure will rise

b) Import expenditure will fall

c) No effect on the import expenditure

d) None of the above

Q6. Why does the Central Bank need to intervene in a managed floating system?

a) To maintain the exchange rate at the specified level

b) To cover the surplus or deficit in BOP

c) To reduce fluctuations in the exchange rate

d) None of the above

Q7. Which of the following is not a source of supply of foreign exchange?

a) Foreign portfolio investment

b) Transfer receipts

c) Speculation

d) Loan taken from World Bank

Q8. If Government bonds in country A pays 8% interest, whereas, equally safe bonds in country B yields 10%, what will be the likely impact on country A's Currency?

a) A's currency will appreciate

b) A's currency will depreciate

c) A's currency will be revalued

d) No effect on A's currency

Q9. Suppose the rupee-dollar exchange rate is 1$ = Rs. 70. The Indian investors think that if they gave the dealer Rs. 70,000 and bought 1,000 dollars, at the end of the month, they would be able to exchange the dollars for Rs. 75,000, thus making a profit of Rs. 5000. What will be the likely effect of this speculation on the foreign exchange rate?

a) The exchange rate will rise

b) The exchange rate will fall

c) The exchange rate will remain unchanged

d) None of the above

Q10. Suppose a shirt costs $20 in the US, and Rs. 1,000 in India. What will be the effect on the exports of India if the exchange rate is Rs. 70/$?

a) Exports will increase

b) Exports will decrease

c) Exports will remain unchanged

d) None of the above

Q11. Which of the following is not a component of the current account of BOP?

a) Exports and imports of goods and services

b) Remittances given by citizens living abroad

c) Net international income from operating surplus

d) None of these

Q12. _______________ is the difference between the value of exports and imports of services, transfers and flow of income of a country during a period of time

a) Balance of trade

b) Net invisibles

c) Current account surplus

d) Current account deficit

Q13. Capital account of BOP records all transactions of assets. Which of the following is not included in assets?

a) Money

b) Government debt

c) Machinery

d) Stocks and bonds

Q14. Which of the following is not recorded in the capital account of BOP?

a) Equity capital

b) Gifts, remittances and grants

c) Government aid

d) Offshore funds

Q15. An increase in foreign income improves the trade balance. True or false?

a) True

b) False

Q16. Profits received from investment abroad is recorded in the capital account of BOP. True or false?

a) True

b) False

Q17. Deficit in the current account indicates deficit in the BOP also. True or false?

a) True

b) False

Q18. Balance of payments "surplus" is the excess of:

a) Current account receipts over current account payments

b) Capital account receipts over capital account payments

c) Autonomous payments over autonomous receipts

d) Autonomous receipts over autonomous payments

Q19. Non-resident deposits are recorded in the _______________ account of BOP.

Capital account

Capital

Q20. If a country has trade surplus of Rs. 200 cr, and value of exports of goods is Rs. 700 cr, what will be the value of imports?

a) Rs. 700 cr

b) Rs. 500 cr

c) Rs. 200 cr

d) Rs. 900 cr

Time's up

Balance Of Payments/Foreign Exchange Rate – Test 6

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