Question : Assertion: Speculative activities in the foreign exchange market can lead to exchange rate volatility.

Reason: Speculators engage in buying and selling currencies to profit from short-term price movements, causing fluctuations in exchange rates.

Option 1: True, as speculators increase liquidity in the foreign exchange market.
 

Option 2: True, as speculators' actions can create imbalances in supply and demand for currencies.
 

Option 3: False, as speculators have no influence on exchange rates.

 

Option 4: False, as exchange rate volatility is solely driven by economic fundamentals.

Question : Assertion: Fluctuations in foreign exchange rates impact a country's imports and exports.

Reason: Changes in exchange rates affect the relative prices of goods and services, making imports more expensive and exports more competitive.

Option 1: True for a country with fixed exchange rates.
  

Option 2: True only for countries with a large trade deficit.
   

Option 3: True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.

Option 4: False, as foreign exchange rates have no influence on a country's imports and exports.

Question : Identify which of the following statements is true?

Option 1: The flexible exchange rate system gives the government more flexibility to maintain large stocks of foreign exchange reserves
 

Option 2: In the Managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
 

Option 3: In the Managed floating exchange system, the central bank intervenes to moderate exchange rate fluctuations

Option 4: In the Fixed exchange rate system, market forces fix the exchange rate.

Question : The real exchange rate is a measure of:

Option 1: Purchasing power of one currency relative to another.
 

Option 2: Exchange rate fluctuations in the short term.
 

Option 3: The value of a currency in terms of gold.

Option 4: Speculative movements in the foreign exchange market.

Question : In a floating exchange rate system, the exchange rate is determined by market forces, and fluctuations in the rate are caused by changes in ________.

Option 1: government policies
 

Option 2: inflation rates
 

Option 3: interest rates

Option 4: supply and demand

Question : Assertion: In case of Floating Exchange rate system currency price of a nation is set by the forex market based on supply and demand relative to other currencies.

Reason: Government intervenes in the foreign exchange market under Floating Exchange rate system to restrict the fluctuations in the exchange rate within certain limits.

Option 1: Both Assertion and Reason are true and correct explanation
 

Option 2: Both Assertion and Reason are true and incorrect explanation
 

Option 3: Assertion is true but Reason is false

Option 4: Assertion is false but Reason is true