Balance Of Payments/Foreign Exchange Rate – Test 7 Welcome to Balance Of Payments/Foreign Exchange Rate - Test 7 Q1. Excess of foreign exchange receipts over foreign exchange payments on account of accommodating transactions, equals the deficit in the BOP. True or false? a) True b) False Q2. Official reserve transactions are relevant under: a) Fixed exchange rate system c) Managed floating exchange rate system d) Both (a) & (c) Q3. Suppose the market determined exchange rate is Rs. 70/$. However, to encourage exports, the RBI devalued rupee by fixing a higher exchange rate of 1$=Rs. 75. How will the Central Bank intervene to maintain the above fixed exchange rate? a) The RBI will withdraw dollars from its past holdings of dollars to meet the excess demand for dollars in the forex market b) The RBI will purchase dollars for rupees in the forex market in order to absorb the excess supply of dollars c) The RBI will follow managed floating exchange rate system d) None of the above Q4. Which of the following is a source of supply of foreign exchange? a) Investments made abroad b) Loans and grants from abroad c) Purchase of goods and services from abroad d) Tourists travelling abroad Q5. Which system of exchange rate determination replaced the Gold Standard? Q6. A country that has a deficit in its current account may finance it: a) By selling assets b) By borrowings from abroad c) By withdrawing from its official reserves d) All of the above Q7. Borrowings are always treated as accommodating items in the BOP. True or false? a) True b) False Q8. In which account of BOP, is increase or decrease in gold reserves recorded? a) Current account b) Capital account c) Both capital and current account d) None of the above Q9. If the market determined exchange rate is lower than the exchange rate fixed by the Government, it will create a situation of _______________ of foreign exchange in the market. a) Excess supply b) Excess demand c) Both (a) & (b) d) None of the above Q10. Interest on loans received by lendings to Pakistan will be recorded in_______________ account of BOP? a) Capital account b) Current account c) Both capital and current account d) Neither capital nor current account Q11. When value of one currency is fixed to the value of another currency or in terms of gold, it is known as _______________of currency. Q12. Fixed exchange rate system is also known as _______________ exchange rate system. Q13. The net value of balance of visible trade, invisible trade and unilateral transfers is known as: a) Balance of trade b) Balance of capital account c) Balance of payments d) Balance of current account Q14. If Apple phones firm invests in India, it will be recorded in which account and which side of BOP? a) Credit side, Current account b) Debit side, Capital account c) Credit side, Capital account d) Debit side, Current account Q15. Indian rupee will be said to appreciate against the British pounds because of: a) Shortage of pounds b) Falling demand of pounds c) More supply of Indian rupees d) Less demand for Indian rupees Q16. According to a headline, "Kuwait moves to tax remittances, thousands of Indians could be hit". What would be its impact on the foreign exchange rate? a) The exchange rate will fall b) The exchange rate will rise c) The exchange rate may fall or rise d) None of the above Q17. A high rate of inflation in the domestic economy causes a deficit in the BOP. True or false? a) True b) False Q18. Greater flow of foreign exchange from rest of the world always reflects a higher level of economic development. True or false? a) True b) False Q19. _______________ is a balancing item in the BOP which reflects the inability to record all international transactions accurately. Q20. Trade surplus and current account deficit may co-exist. True or false? a) True b) False Time's up
