Question : Appreciation and depreciation of a country's currency are primarily influenced by:
Option 1: Supply and demand dynamics in the foreign exchange market.
Option 2: Government regulations.
Option 3: International trade agreements.
Option 4: None of the above.
Correct Answer: Supply and demand dynamics in the foreign exchange market.
Solution : The correct answer is a) Supply and demand dynamics in the foreign exchange market.
Appreciation and depreciation of a country's currency are primarily influenced by supply and demand dynamics in the foreign exchange market. The value of a currency is determined by the interactions of buyers and sellers in the market, based on factors such as interest rates, economic indicators, geopolitical events, and investor sentiment.
When there is a high demand for a currency relative to its supply, its value tends to appreciate, meaning it becomes stronger compared to other currencies. Conversely, when there is a higher supply of a currency relative to its demand, its value tends to depreciate, meaning it becomes weaker compared to other currencies.
Government regulations and international trade agreements can indirectly influence a currency's value, but the primary driver is the market forces of supply and demand.
Question : When domestic currency gains value in relation to a foreign currency in the international market, it is termed as a situation of:
Option 1: Currency Depreciation
Option 2: Currency Appreciation
Option 3: Currency Devaluation
Option 4: None
Question : In a floating exchange rate system, the value of a currency is primarily determined by:
Option 1: Central bank intervention
Option 2: Trade imbalances
Option 3: Market forces of supply and demand
Option 4: Government regulations
Question : Selling of securities by foreign institutional investors in Indian capital market with lead to fall in the _______ of foreign currency in the market. The situation might lead to excess _____ of foreign currency at prevailing foreign exchange rate.
Option 1: Demand, demand
Option 2: Supply, supply
Option 3: Demand, supply
Option 4: Supply, demand
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
Question : Which of the following factors can influence the supply of a country's currency in the foreign exchange market?
Option 1: Interest rates
Option 2: Capital flows
Option 3: Trade balances
Option 4: All of the above
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