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CBSE Questions for Class 12 Commerce Economics Open Economy Macroeconomics Quiz 6 - MCQExams.com
CBSE
Class 12 Commerce Economics
Open Economy Macroeconomics
Quiz 6
Rate of exchange as determined by the government is called _____.
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0%
Fixed exchange rate
0%
Floating exchange rate
0%
Flexible exchange rate
0%
None of these
Explanation
The fixed exchange rate is the rate of exchange that is held constant or established by the government. It avoids frequent fluctuations in the exchange rate and makes international trade more predictable.
Hence, A is the correct option.
Exchange rate is the price of a currency expressed in terms of _____.
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0%
Gold
0%
Metal
0%
Another currency
0%
None of these
Explanation
Foreign exchange rate refers to the rate at which one currency is exchanged for another currency in the international money market. It is the price of a currency expressed in terms of another currency.
Hence, C is the correct option.
When the US dollar exchanges for 50, instead of 55 earlier, the domestic currency shows _____.
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0%
Currency appreciation
0%
Currency depreciation
0%
Currency devaluation
0%
None of these
Explanation
Currency appreciation is the situation where there is an increase in the value of the domestic currency in terms of another foreign currency.
In the above situation, there is a decrease in the value of US dollars from $55 to $50. This is a situation of currency appreciation as the value of the domestic currency has increased in terms of US dollars.
Hence, A is the correct option.
Demand curve for foreign exchange is _____.
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Negatively related to the rate of exchange
0%
Positively related to the rate of exchange
0%
Proportionately related to the rate of exchange
0%
Not related to the rate of exchange
Explanation
The demand curve for foreign exchange is downward sloping.
The higher the exchange rate, the lower is the demand for imported commodities which results in the downfall of demand for foreign currency. The lower the exchange rate, the higher is the demand for imported commodities which results in an upward movement of foreign currency.
Hence, A is the correct option.
The exchange rate at which demand for foreign currency is equal to its supply is called _____.
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0%
Equilibrium exchange rate
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Floating exchange rate
0%
Equal exchange rate
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Both A and C
Explanation
The foreign exchange rate is usually determined by the market forces of demand and supply in the foreign exchange market. It is known as a fluctuating exchange rate. The equilibrium exchange rate is the intersection of the demand curve and supply curve of foreign currency. It is determined when the quantity demanded and the quantity supplied for a foreign currency is equal.
Hence, A is the correct option.
When a domestic currency loses its value in relation to a foreign currency in the international money market, it is a situation of _____.
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0%
Currency Appreciation
0%
Currency Depreciation
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Currency Devaluation
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None of these
Explanation
Currency depreciation is the situation where the value of domestic currency decreases in terms of foreign currency. This is observed in the floating exchange rate system where the foreign exchange rate keeps fluctuating.
Currency depreciation may happen due to one or more than one economic factor such as economic instability, risk aversion among investors, and different interest rates.
Hence, B is the correct option.
The supply curve of foreign exchange is _____.
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Negatively sloped from left to right
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Positively sloped from left to right
0%
A straight line from left to right
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A rectangular hyperbola curve
Explanation
The supply curve for foreign exchange is upward sloping. The higher the exchange rate, the higher will be the export and supply of foreign exchange. This will result in the attraction of foreigners towards the domestic country.
Hence, the supply curve for foreign exchange is positively sloped from left to right.
So the correct option is B.
Foreign exchange rate refers to _____.
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The price of one currency in terms of gold in the domestic market
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The price of one currency in relation to other currencies in the international money market
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The price of domestic currency in relation to foreign currency in the international money market
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Both (b) and (c)
Explanation
Foreign exchange rate refers to the rate at which one currency is exchanged for another currency in the international money market. With regard to a country, it is the rate at which the domestic currency is exchanged with foreign currency in the international market.
Hence, D is the correct option.
Balance of payments 'deficit' is the excess of _____.
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0%
Current account payments over current account receipts
0%
Capital account payments over capital account receipts
0%
Autonomous payments over autonomous receipts
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Accommodating payments over a accommodating receipts
Explanation
When the receipts coming from autonomous transactions are less than the payments coming from autonomous payments to the rest of the world during an accounting year, it is called as balance of payments deficit.
Hence, C is the correct option.
Spot market deals in which of the folowing?
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0%
Current transactions.
0%
Future transactions.
0%
Current as well as future transactions.
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Transactions meant for future delivery.
Explanation
Spot market handles spot transactions. The market whose operation is of daily nature is called spot market or current market. It deals in current transactions.
Hence, A is the correct option.
Merchandise Balance =
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0%
Export of goods - Import of goods
0%
Export of services - Import of services
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Investment income + Compensation of employees
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None of these
Explanation
The merchandise trade balance arises from the difference in the value between imported goods and exported goods.
Merchandise Balance = Export of goods - Import of goods
Hence, A is the correct option.
Which of the following are the components of foreign capital?
$$1$$. Grants and loans.
$$2$$. External commercial borrowings.
$$3$$. Foreign direct investment.
$$4$$. Deposits from non-residents.
Select the correct answer using the code given.
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0%
$$1, 2, 3$$ and $$4$$
0%
$$1, 2$$ and $$4$$
0%
$$1$$ and $$2$$
0%
$$3$$ and $$4$$
Explanation
Foreign capital, in general terms, refers to the capital receipts from foreign sources, its components are:
(i) Private foreign investment
(ii) Indirect investment
(iii) External commercial borrowings
(iv) Non-resident deposit
(v) Public foreign investment
(vi) United loans
(vii) Inter-government grants.
Which one of the following pairs is not correctly matched with regard to balance of payments accounts?
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0%
Import of goods and services - Debit in the current account
0%
Receipts of transfer payment - Credit in the current account
0%
Direct investment receipt - Credit in the capital account
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Portfolio investment payments - Debit in the current account
Explanation
The balance of payments account for one country records all the payments that effect funds transfers between that nation and the rest of the world. Payments from foreigners to the domestic country are credited to the account. These include all foreign payments for exports, payments from foreign tourists for services, investment income made by the domestic country in foreign markets, unilateral transfers and capital inflows.
Which of the following terms is used in the field of economics?
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0%
Absolute Zero
0%
Molecular Equation
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Zero Point Energy
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Balance of Payments
Explanation
Balance of Payment is an economic term which record all international financial transactions made by a country's residents .
A country's balance of payment tells you whether it saves enough economic output to pay for its imports. It also revels whether the country produces enough economic output to pay for its growth.
The balance of payment is reported for a quarter or a year. A balance of payment deficit means the country imports more , services and capital than exports vice versa.
The Smithsonian agreement devalued the U.S. dollar by _________ relative to gold.
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0%
9.5%
0%
8.5%
0%
8%
0%
9%
Which of the following is an economic term?
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0%
Plaintiff
0%
Bunker Blaster
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Deflation
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Lampoon
Explanation
Deflation is an economic term which means there is general decline in prices of goods and services occurring when the inflation rate falls below 0%.
Deflation happens naturally when the money supply of an economy is fixed. In times of deflation , the purchasing power of currency and wages are higher than they otherwise would have been . Hence when the overall price level decreases so that inflation becomes negative is called deflation
In the balance of payment account, the transfer payments are included in which one of the following?
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Current account
0%
Service account
0%
Capital account
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Official reserves account
Explanation
Transfer payments in the balance of payment account are those payments that are made without any underlying exchange of goods/services. These are accounted for in the current account of the balance of payment and includes transfer payments such as:
(a) Gifts
(b) Foreign aid
(c) Pension
(d) Private remittances
(e) Charitable donations.
Forward exchange rate is the rate _____.
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0%
Which happens to prevail in the future
0%
Which happens to clear the current transactions
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At which market demand for foreign currency= market supply of foreign currency
0%
At which forward transactions are to be honoured
Decrease in Official Reserves Account =
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0%
Current account deficit + Capital account deficit
0%
Current account deficit - Capital account deficit
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Current account surplus + Capital account surplus
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Current account surplus - Capital account surplus
Explanation
The overall balance is estimated as the sum total of current account balance, capital account balance, and errors and omissions
The overall balance is finally reflected in the Official Reserves Account of the RBI. There is an increase in the official reserves account when there is a trade surplus and a decrease in the official reserves account when there is a trade deficit.
Decrease in Official Reserves Account = Capital account deficit + Current account deficit
Hence, A is the correct option.
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