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TOPIC- FOREIGN EXCHANGE RATE, MCQ, , , , QUESTIONS, Increase in the value of foreign commodities is known as :, (A)Revaluation, (B)Devaluation, (C)Inflation, (D) None of these, , , , Which one is the king of the exchange rate?, , (a) Fixed Exchange Rate, , (b) Flexible Exchange Rate, , (c) Both (a) and (b), , (d) None of the above, , Which one is a merit of the fixed exchange rate?, (a) Promotes Foreign Trade, , (b) Induces Foreign Capital, , (c) Increases Capital Formation, , (d) All the above, , , , Which one is a source of the demand for foreign exchange?, (a) Imports of Goods and Services from Abroad, , (b) Investment in Foreign Nations, , (c) Gift Scheme to Foreign Nations, , (d) All the above, , , , Foreign exchange is determined by:, , (a) Demand for foreign currency, , (b) Supply of foreign currency, , (c) Demand and supply in the foreign exchange market, (a) None of the above, , , , The fixed exchange rate is determined by:, (a) Government, , (b) Bargaining, , (c) World Bank, , (d) Demand and Supply forces, , , , By exchange rate we mean:, , (a) How much local currency we have to pay for a foreign currency, , (b) How much of a foreign currency we have to pay for another foreign currency, , (c) The rate at which foreign currency is hought and sold, , (d) All of these:, , Which function of foreign exchange markct protects against the forcign exchange risk?, (a) Credit function, , (b) Hedging function, , (c) Transfer function, , (d) All of them, , , , 10, , , , Reduction in the value of domestic currency by the government is called, (a) depreciation, , (b) devaluation, , (c) revaluation, , (d) appreciation, , What will be the effect on exports if foreign exchange rate increases’?, (a) Increases, , (b) Decreases, , (c) Remains constant, , {d) None of them

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The supply of foreign exchange comes from, , (a) the foreigners purchasing home country’s goods and services through exports, , (b) the foreigners who invest in home country through joint ventures or through financial market, operations, , (c) currency dealers and speculators,, , (d) all of them, , , , , , , , , , , , , , 12 Which exchange rate measures the average relative strength of a given currency with respect to, other currencies without eliminating the effect of change in price?, (a) Nominal exchange rate, (b) Nominal effective exchange rate, (c) Real exchange rate, (d) Real etfective exchange rate, 13 Other things remaining the unchanged, when in a country the price of foreign currency rises,, national income is:, (a) Likely to rise, (b) Likely to fall, (¢) Likely to rise or to fall, (d) Not affected, 14 What is the impact of India-Iran contract of payment of oil in rupees?, A. Forex reserve increase in India, B. Forex reserve decrease in India, C. Depreciation of rupee, D. Both A and C, 15 Types of Foreign Exchange Market are :, (a) Spot market, (b) Forward market, (c) Both (a) and (b), (d) None of these., ARQ, 16 Assertion (A): Appreciation of domestic currency means a rise in the price of domestic currency, Reason (R): Appreciation leads to increase in exports., a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of, Assertion (A)., b) Both Assertion (A) and Reason(R) are truc, and Reason (R) is not the correct explanation of, Assertion (A)., c) Assertion (A) is true, but Reason (R) is false,, d) Assertion (A) is false, but Reason (R) is true, 17 Assertion (A): Depreciation of domestic currency leads to rise in exports., Reason (R): Depreciation of domestic currency makes domestic currency relatively cheaper,, which leads to increase in exports., a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of, Assertion (A)., b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of, Assertion (A)., c) Assertion (A) is true but Reason (R) is false,, d) Assertion (A) is false but Reason (R) is true, 18 Assertion (A): Managed Floating Exchange rate system is a combination of fixed and flexible, , , , exchange rate systems., Reason (R): In managed floating exchange rate system, central hank decides the limit of Both, , a) Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion, (A)., b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of

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Assertion (A)., c) Assertion (A) is true but Reason (R) is false., d) Assertion (A) is false but Reason (R) is truc, , , , , , , , , , , , 19 Assertion (A): Appreciation of domestic currency means a rise in the price of domestic, currency., Reason (R): Appreciation leads to increase in Exports., A. Both Assertion (A) and Reason (R) are tue and Reason (R) is the correct explanation of, Assertion (A)., B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of, Assertion (A)., C. Assertion (A) is true but Reason (R) is false,, D. Assertion (A) is false but Reason (R) is true., , 20 Assertion (A): Managed floating exchange rate system ts also called as “Dirty floating”, Reason (R): Clean floating rate is influenced by the intervention of the central hank in the, foreign exchange market,, A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of, Assertion (A)., B) BothAssertion( A )andReason(R are true and Reason (R) is not the correct explanation of, Assertion (A)., C) Assertion (A) is true but Reason (R) is false., D) Assertion (A) is false but Reason (R) is true., , CASE BASEED 1, , Read the following hypothetical text and answer the given questions: Rach nation has its own currency when monetary transactions are conducted within the national, borders, payments are made in the currency of that country for example Indian currency is called, rupec. To be more exact it is called Indian rupee payments within the national borders Of India, are made in Indian rupees. Similarly, each other nation has its own currency for example, Pakistan currency is called Pakistani rupee USA currency US dollar Kuwait currency Kuwaiti, Dinar UAE currency dirham and so on payments within the nation borders of Pakistan are made, in Pakistani rupees payment within the national border of USA is USA dollars, etc. When, transactions are conducted across National borders one currency must be converted into another., Conversion rate between two currencies is decided by two ways first fixed exchange rate second, floating or flexible exchange rate., , 21 Exchange rate refer to the rate at which the following is exchanged:, (a) Goods, (b) Currencies, c) Services, {d) All the above, , 22 Who fixed the flexible exchange rate:, (a) Market force, (b) Government, (c) Both a and b, (d) None of these, , 23 refers to a system in which exchange rate for a currency is fixed by the, government., a)Fixed exchange rate, , , , b) flexible exchanged rate, ¢) floating exchange rate, d) none of above

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24 Conversion rate between two currencies is decided by two ways first .. . exchange rate, second ............. exchange rate, a) Fixed , floating, b) flexible, Fixed, c) Fixed,Managed floating, d) none of above, CASE BASED 2, Read the following hypothetical text and answer the given questions: The rupee declined 18 paise to close at 74.36 against the US dollar on Wednesday, tracking, strengthening American currency in the overseas market and higher crude prices. However, a, strong rally in domestic cquitics and unabated foreign fund inflows restricted the slide of the, domestic unit, forex traders said. At the interbank foreign exchange market, the local currency, opened on a weak note at 74.24 and swung between the day's high of 74.18 and low of 74.50 to, the US dollar. The rupee finally settled at 74,36 against the greenback, down 18 paise over its, last close. “Indian rupee depreciated amid strong dollar and surge in crude oil prices. Further,, rupee slipped on worries over a slowdown in global economic recovery due to resurgence in, COVID-19 cases, “India CPI data is likely to show that inflation remained above the Reserve, Bank of India medium- term target range of 2-6 per cent. India’s Industrial Production data, forecasted to show factory output contracted for 7 consecutive month,” Mukadam said., 25 The rupee declined 18 paise means of rupee., A. Depreciation, B. Appreciation, C. Devaluation, D. Revaluation, 26 What is the full form of CPI?, A. Current Price Index, B_ Crude Price Index, C. Consumer Price Index, D. None of the above, 27 The rupee finally settled at 74.36 against the greenback, down aver its last close., A. 18 paise, B. 18 rupees, C. 74.36 paise, , , , D. none of these

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28, , At the interbank foreign exchange market, the local currency opened on a weak note at 74,24, and swung between the day's high of 74.18 and low of .................... to the US dollar., , A. 74.50 US dollar, , B. 74.24 US dollar, , C. 74.18 US dollar, , D-_ none of these, , , , TRUE/FALSE, , , , Bretton woods system is also known as adaptable border system. ATrue, B False, , , , There is direct relation between foreign exchange rate and the supply of foreign exchange., A Te, B False, , , , aI, , The value of currency of one country with that of the currency of another country is called, , Exchange rate., ATrue, , B False, , , , 32, , , , Which of the following is tue?, , (a) Fixed exchange rate is determined by the government, , (b) Flexible exchange rate is determined by market forces (demand and supply of foreign, exchange), , (c) Both (a) and (b), , (d) None of the above