Open Economy Macroeconomics - Class 12 Commerce Economics - Extra Questions

Very Short Answer Type Questions:
Give meaning of managed floating exchange rate. 



Distinguish between sunk capital and floating capital.



What will be the effect of the following on the Balance of Payments: (i) 'Make in India' Programme' (ii) Import of Pulses.



State the effect of rise in the price of foreign currency on the Balance of Payments situation.



Should a current account deficit be a cause for alarm? Explain.



What are official reserve transactions? Explain their importance in the balance of payments.



Why does the demand for foreign currency fall and supply rises when its price rises? Explain. 



Why are foreign exchange rate and supply of foreign exchange directly related? Explain. 



Visits to foreign countries for sightseeing etc. by the people of India is on the rise. What will be its likely impact on foreign exchange rate and how? 



'Devaluation and Depreciation of currency are one and the same thing'. Do you agree? How do they affect the exports of a country?



What will be the effect of foreign investments in India on exchange rate? Explain. 



How does giving incentives for exports influence foreign exchange rate? Explain. 



State whether the following items constitute demand or supply of foreign exchange:
(i) Indian going to USA for medical treatment. 
(ii) Donation of 500 Million $ received from Microsoft.
(iii) Import of goods from China.
(iv) Indian students going to Australia for MBA.
(v) Foreign Tourists to India to visit Taj Mahal.
(vi) Purchase of land in England.  
(vii) Bought 500 Pounds to sell for speculation.



Why does demand for foreign exchange arise for speculative activities?  



Foreign exchange rate in India is on the rise recently. What impact is it likely to have on exports and how? 



A policy initiated by the Indian Government had an adverse impact on the value of Rupee in relation to foreign exchange. What does this indicate? Discuss this with the help of a numerical example. Also explain its effect on the exports and imports of the economy.



The Indian government launched 'Incredible India' or 'Atulya Bharat' campaign to promote tourism in India. How will it affect the price of foreign exchange? 



Would the central bank need to intervene in a managed floating system? Explain why. 



What is meant by visible items?



How is the exchange rate determined under a flexible exchange rate regime? 



Very Short Answer Type Questions 
What is meant by foreign exchange rate? 



The Balance of trade shows a deficit of $$ Rs. 300$$ crores. The value of exports are $$ Rs. 500 $$ crores. What is the value of imports?



Very Short Answer Type Questions 
What is foreign exchange?



What is the meaning of invisible items? 



Identify the following items as visible or invisible:
(a) Export of jute; (b) Export of software services.



Very Short Answer Type Questions:
Mention two reasons for the people to acquire foreign exchange. 



Very Short Answer Type Questions:
Mention the effects of exchange depreciation on exports.



Very Short Answer Type Questions 
What is meant by depreciation of domestic currency?



What are the two main components of the Balance of Payments account?



Very Short Answer Type Questions:
What is a fixed exchange rate?



Very Short Answer Type Questions:
Give the meaning of currency appreciation.



State the components of current account? 



Very Short Answer Type Questions:
What is floating exchange rate?



Very Short Answer Type Questions:
Define flexible exchange rate system.



Very Short Answer Type Questions:
Name the two sources of demand or outflow of foreign exchange.



Very Short Answer Type Questions:
Why does supply curve of foreign exchange slope upwards? 



Very Short Answer Type Questions:
State the three functions of foreign exchange market. 



How Is a deficit or a surplus on the current account restored? 



Very Short Answer Type Questions:
What are the two ways in which foreign exchange can flow into the domestic market?



Very Short Answer Type Questions:
What will be the effect on imports if foreign exchange rate increases?



Very Short Answer Type Questions:
How can Reserve Bank of India help in bringing down the foreign exchange rate which is very high? 



Very Short Answer Type Questions:
Give the meaning of forward exchange rate.



Very Short Answer Type Questions:
The price of $$1\ US$$ Dollar has fallen from $$Rs. 50$$ to $$Rs. 48$$. Has the Indian currency appreciated or depreciated? 



What is meant by deficit in balance of payments?



Very Short Answer Type Questions:
What is meant by spot exchange rate? 



Short Answer Type Questions:
Explain two sources each of demand and supply of foreign exchange.



Short Answer Type Questions:
Give two reasons for rise in demand for a foreign currency when its price falls. 



Short Answer Type Questions:
Give the meaning of:
(i) Foreign Exchange;
(ii) Foreign Exchange Rate;
(iii) Foreign Exchange Market.



Very Short Answer Type Questions:
What is 'devaluation'?



Very Short Answer Type Questions:
Name the market exchange rate system in which the Central Bank can actively intervene. 



Short Answer Type Questions:
Explain how 'Depreciation of currency' promotes exports of a country?



What is meant by trade deficit? 



Short Answer Type Questions:
Briefly discuss the concepts of currency appreciation and currency depreciation.



Short Answer Type Questions:
What is meant by foreign exchange rate? Why does a rise in foreign exchange rate cause a rise in its supply?



Short Answer Type Questions:
What is meant by foreign exchange rate? Give three reasons why people desire to have foreign exchange. 



Short Answer Type Questions:
What is meant by fixed exchange rate system and flexible exchange rate system? 



Short Answer Type Questions:
Give the meaning of foreign exchange rate. How is it determined under flexible exchange rate regime? 



Short Answer Type Questions:
Distinguish between fixed and flexible exchange rate.



How is balance of payment  measured? Explain.



Short Answer Type Questions:
Distinguish between devaluation and depreciation of domestic currency.



Short Answer Type Questions:
Write short notes on: (i) Spot market; (ii) Forward market. 



Short Answer Type Questions:
When price of a foreign currency rises, its supply also rises. Explain why.



Short Answer Type Questions:
Explain the effect of appreciation of domestic currency on imports. 



Short Answer Type Questions:
What are fixed and flexible exchange rates?



Short Answer Type Questions:
Explain the meaning of Managed Floating Exchange Rate. 



Long Answer Type Questions :
Discuss in brief: (i) Fixed exchange rate system; (ii) Flexible exchange rate system; and (iii) Managed floating rate system. 



Long Answer Type Questions :
Distinguish between the fixed exchange rate and the floating exchange rate. If exchange rate falls, explain its effects on exports and imports.



Long Answer Type Questions :
Explain the distinction between the flexible exchange rate and the managed floating exchange rate. 



Long Answer Type Questions :
"Equilibrium rate of exchange is determined when the demand for foreign exchange is equal to its supply." Explain this statement, 



(a) Define Trade Surplus and Trade Deficit.
(b) Discuss briefly the concept of managed floating system of foreign exchange rate determination.



What do you understand by devaluation of rupee?



Current account and ______ account are two main accounts on the balance of payment.



The capital that is consumed by an economy or a firm in the production process is known as ____________.



Which bank controls foreign exchange?



(a) In which sub-account and on which side of balance of payments account will foreign investments in India be recorded? Given reasons.
(b) What will be the effect of foreign investments in India on exchange rate? Explain. 



What is meant by depreciation of domestic currency?



Explain the meaning of Managed Floating Exchange Rate. 



Class 12 Commerce Economics Extra Questions