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
Correct Answer: Supply foreign exchange from its stock
Solution : The correct answer is (a) Supply foreign exchange from its stock
Supply foreign exchange from its stock: The central bank can intervene in the foreign exchange market by supplying its stock of foreign currency reserves. By increasing the supply of foreign exchange, the central bank can help alleviate the upward pressure on the exchange rate.
The specific step taken by the central bank will depend on various factors, including the magnitude and duration of the exchange rate movement, the country's exchange rate policy framework, and the central bank's assessment of the situation.
Question : In a floating exchange rate system, exchange rates are determined by:
Option 1: Market forces of supply and demand
Option 2: Government intervention
Option 3: Central bank policies
Option 4: Fixed exchange rates
Question : A ________ exchange rate is determined by the forces of supply and demand in the foreign exchange market.
Option 1: fixed
Option 2: floating
Option 3: managed
Option 4: pegged
Question : Which of the following exchange rate systems allows the exchange rate to be determined solely by market forces of supply and demand?
Option 1: Fixed exchange rate
Option 2: Floating exchange rate
Option 3: Managed float exchange rate
Option 4: Pegged exchange rate
Question : The foreign exchange rate is determined by:
Option 1: Central banks
Option 2: Stock markets
Option 3: Government policies
Option 4: Supply and demand in the foreign exchange market
Question : In the context of exchange rates, what does the term "pegged" mean?
Option 1: The exchange rate is determined by market forces.
Option 2: The exchange rate is fixed by the central bank.
Option 3: The exchange rate fluctuates freely.
Option 4: The exchange rate is determined by interest rate differentials.
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