Question : Which of the following leads to increase in supply of foreign exchange
Option 1: Exports of visible and invisible
Option 2: Imports of visible and invisible
Option 3: Remittances to abroad
Option 4: foreign visits by Indians
Correct Answer: Exports of visible and invisible
Solution : The correct answer is (a) Exports of visible and invisible.
Exports of visible goods (physical goods) and invisible goods (services) contribute to the supply of foreign exchange. When a country exports goods or services to other countries, it receives payments in foreign currency, which increases its foreign exchange reserves.
Imports of visible and invisible goods, on the other hand, contribute to the demand for foreign exchange, as the country needs to pay in foreign currency for the imported goods or services.
Remittances to abroad and foreign visits by Indians do not directly increase the supply of foreign exchange. Remittances involve sending money from one country to another, which may increase the foreign exchange reserves of the recipient country but not the country of origin. Similarly, foreign visits by Indians involve spending foreign currency, which increases the demand for foreign exchange.
Question : What is the impact of a stronger domestic currency on a country's imports and exports?
Option 1: Increase in imports, decrease in exports
Option 2: Decrease in imports, increase in exports
Option 3: Increase in imports, increase in exports
Option 4: Decrease in imports, decrease in exports
Question : The foreign trade effect suggests that an increase in the price level:
Option 1: Increases imports and decreases exports
Option 2: Decreases imports and increases exports
Option 3: Increases both imports and exports
Option 4: Decreases both imports and exports
Question : When price of a foreign currency falls ______from that foreign country becomes cheaper and ________ increases.
Option 1: Imports, imports
Option 2: Exports, exports
Option 3: Imports, exports
Option 4: Exports, Imports
Question : Increasing imports by a nation raises_____________ of foreign exchange.
Option 1: Supply
Option 2: Demand
Option 3: Both a and b
Option 4: None
Question : Which of the following steps should taken by the central bank if there is excessive rise in the foreign exchange rate?
Option 1: Supply foreign exchange from its stock
Option 2: Demand more of other foreign exchange
Option 3: Not intervene in the market as exchange rate is determined by the market forces
Option 4: Help central government to stabilize foreign exchange rate
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