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Open Economy Macroeconomics Test 10

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Open Economy Macroeconomics Test 10
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Balance of payments is a __________ concept. 
  • Question 2
    1 / -0
    Surplus in BOP arises when: 
  • Question 3
    1 / -0
    Foreign exchange transactions dependent on other foreign exchange transactions are called ________________.
    Solution
    Accomodating transactions are compensating capital transactions which are maintained to correct the disec librium in autonomous items of balance of payment. Foreign exchange transactions dependent on other foreign exchange transactions are called accomodating transactions. The sources used to meet a deficit in BOP are-
    1. Foreign exchange reserves
    2. Borrowings from IMF or foreign monetary authorities.
    Hence, option D is correct.
  • Question 4
    1 / -0
    Which of the following items raises the supply of foreign exchange?
  • Question 5
    1 / -0
    Flexible exchange rate system is also known as __________. 
    Solution
    Flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' or 'floating exchange rate' as it is determined by the free play of supply and demand forces in the international money market.
  • Question 6
    1 / -0
    _________ refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention.
    Solution
    Managed floating is a tool employed by the Central bank to restore the value of the country's currency in relation to other countries within the desired limits, even when the exchange rate is determined by the market forces of demand and supply.
  • Question 7
    1 / -0
    Supply curve of foreign exchange ____________________.
    Solution
    The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example exports rise as the foreign exchange rate rises.
  • Question 8
    1 / -0
    Depreciation of domestic currency leads to rise in _____________.
  • Question 9
    1 / -0
    Balance of Payments 'deficit' is the excess of ______________________.
    Solution
    Balance of payment account is in surplus when autonomous receipts are more than the autonomous payment and balance of payment is in deficiet when autonomous payments are less than the autonomous payment.
    Hence option C is correct.
  • Question 10
    1 / -0
    A change from $$Rs.140 = 2$$ pounds to $$Rs. 60 = 1$$ pounds indicates that Rs. is:
    Solution
    A change from RS 140 = 2 pounds to Rs 60 = 1 pounds indicates that rupees is appreciating. Appreciation of domestic currency is a situation of a fall in exchange rate. Less rupees are needed to buy one pound.
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