Question : What is the primary function of the foreign exchange market?
Option 1: Facilitating international trade
Option 2: Setting interest rates
Option 3: Regulating stock markets
Option 4: Controlling inflation rates
Correct Answer: Facilitating international trade
Solution : The correct answer is a) Facilitating international trade
The primary function of the foreign exchange market is to facilitate the exchange of currencies between different countries. It provides a platform for individuals, businesses, and financial institutions to buy and sell currencies, allowing for the conversion of one currency into another. This enables participants in the market to engage in international trade and conduct cross-border transactions. The foreign exchange market plays a crucial role in determining exchange rates, which impact the cost of imports and exports, and ultimately influence a country's international trade flows. While the foreign exchange market can indirectly influence interest rates and inflation rates, its main purpose is to support international trade and currency exchange.
Question : An increase in the nominal exchange rate can be caused by:
Option 1: Lower interest rates in the domestic economy.
Option 2: Higher inflation rates in the domestic economy.
Option 3: Lower inflation rates in the domestic economy.
Option 4: Government intervention in the foreign exchange market.
Question : Case Study 33
XYZ Corporation is a well-established company with shares traded on a stock exchange. The company's management is reviewing the functions of a stock exchange.
Question :
What is the primary function of a stock exchange?
Option 1: Issuing new shares
Option 2: Regulating credit rating agencies
Option 3: Facilitating trading of securities
Option 4: Setting interest rates
Question : Which of the following is a function of the Reserve Bank of India (RBI)?
Option 1: Regulating the stock market
Option 2: Controlling inflation and monetary policy
Option 3: Issuing government bonds
Option 4: Regulating mutual funds
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