Question : A decrease in interest rates in a country is likely to result in:
Option 1: Appreciation of the domestic currency
Option 2: Depreciation of the domestic currency
Option 3: No impact on the exchange rate
Option 4: Unpredictable fluctuations in the exchange rate
Correct Answer: Depreciation of the domestic currency
Solution : A decrease in interest rates in a country is likely to result in a depreciation of the domestic currency. This is because lower interest rates make a country's assets, such as bonds and bank deposits, less attractive to foreign investors, who will seek higher returns elsewhere. As a result, the demand for the domestic currency decreases, causing its value to decline relative to other currencies.
Conversely, an increase in interest rates in a country is likely to result in an appreciation of the domestic currency, as higher interest rates make a country's assets more attractive to foreign investors and increase demand for the domestic currency.
Question : A decrease in a country's exports is likely to result in:
Option 1: Appreciation of its currency
Option 2: Depreciation of its currency
Option 3: No impact on its currency
Option 4: A fixed exchange rate
Question : A country with a trade surplus is likely to experience:
Question : An increase in the nominal exchange rate indicates:
Option 1: Appreciation of the domestic currency.
Option 2: Depreciation of the domestic currency.
Option 3: No change in the value of the domestic currency.
Option 4: Inflation in the domestic economy.
Question : The Indian Government launched Incredible India campaign to promote tourism in India? How it will impact the exchange rate?
Option 1: Appreciation of domestic currency
Option 2: Outflow of foreign exchange
Option 3: Depreciation of domestic currency
Option 4: None
Question : It refers to decrease in the value of domestic currency in terms of foreign currency.
Option 1: Depreciation
Option 2: Appreciation
Option 3: Revaluation
Option 4: Devaluation
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