Open Economy Macroeconomics Test 3

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Open Economy Macroeconomics Test 3

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Weekly Quiz Competition

Question 1
1 / -0

Which of the following can be included in the current account of the balance of payments?
(i) Purchase of goods from abroad
(ii) sale of services abroad
(iii) Worker's remittances from abroad
(iv) Sale of copyright to foreigners
(v) Direct investment in equity capital

A
(i), (ii) and (iii)

B
(i), (ii) and (iv)

C
(i), (ii), (iii) and (v)

D
(i), (ii), (iii) and (iv)

Solution

The balance of payments account comprises of the current account and the capital account. The current account consists of the visible and invisible imports and exports of the country (such as purchase of goods from abroad and sale of services abroad) as well as unilateral transfers and income receipts and payments (such as worker remittances from abroad).
Question 2
1 / -0

Purchasing Power Parity theory is related with ________.

A
interest rate

B
bank rate

C
wage rate

D
exhange rate

Solution

The acronym PPP stands for, "Purchasing Power Parity". It is a method of currency valuation that tells us that the exchange rate between two countries must be equal to the ratio of the currencies' respective purchasing power, i.e., two identical goods should eventually cost the same in different countries once adjusted for purchasing power parity.
Question 3
1 / -0

Which country follows a fixed exchange rate system?

A
India

B
USA

C
UK

D
Cuba

Solution

In a fixed rate system, the price of the domestic currency in international markets is purely determined by the central bank of the country. It is not allowed to appreciate and depreciate as per the market conditions, the central bank will intervene using forex reserves and hold the exchange rate at the pegged amount The Banco Central De Cuba does intervene in the forex market for the Cuban peso and it is classified as a fixed currency.
Question 4
1 / -0

Which of the following sections is not a part of the balance of payments?

A
Current Account

B
Capital Account

C
Official Reserve Account

D
Loss Accounts

Solution

The balance of payments account comprises of the current account and the capital account. The current account consists of the visible and invisible imports and exports of the country as well as unilateral transfers and income receipts and payments. The capital account includes the capital receipts and capital payments such as portfolio investments. It may also maintain an official reserve account to run either a fixed exchange rate regime or a managed float regime.
Question 5
1 / -0

Which country follows an flexible exchange rate system?

A
Cuba

B
Dijibouti

C
Eritrea

D
USA

Solution

In a flexible rate system, the price of the domestic currency in international markets is purely determined by the market forces of supply and demand. It is allowed to appreciate and depreciate as per the market conditions, without intervention by the central bank. The Federal Reserve does not intervene in the forex market for the US dollar and it is classified as a freely floating currency.
Question 6
1 / -0

What is the main feature of a flexible exchange rate system?

A
Determined by forces of market supply

B
Determined by forces of market demand

C
Both A and B

D
None of the above

Solution

In a flexible rate system, the price of the domestic currency in international markets is purely determined by the market forces of supply and demand.
It is allowed to appreciate and depreciate as per the market conditions, without intervention by the central bank.
The Federal Reserve does not intervene in the forex market for the US dollar and it is classified as a freely floating currency.
Question 7
1 / -0

What is foreign exchange rate?

A
The price of one currency in term of another

B
Price of one quantity in terms of another

C
Price of one currency in terms of another economies price

D
Price of one economies price in terms of another economies currency

Solution

An exchange rate system, also called a currency system, establishes the way in which the exchange rate is determined, i.e., the value of the domestic currency with respect to other currencies.
Choosing the currency system is a pivotal element of the economic policy adopted by a country's government.
Question 8
1 / -0

Which conference had given birth to International Monetary Fund?

A
Uruguay Round Conference

B
Round Table Conference

C
Bretton Woods Conference

D
Simla Conference

Solution

The Bretton Woods conference was held in washington, DC in 1944. It was the period after the great depression and most economies in Europe were failing thus the IMF was set up as a bank where member states could draw from to maintain economic activity and employment through periodic crises.
Question 9
1 / -0

What is the main feature of a fixed exchange rate?

A
It is pegged at a certain level by the market

B
It is pegged at a certain level by the government

C
It is pegged at a certain level by individuals

D
It is pegged at a certain level by the central bank

Solution

In a fixed rate system, the price of the domestic currency in international markets is purely determined by the central bank of the country. It is pegged bilaterally and is artificially maintained at that level by the central bank. It is not allowed to appreciate and depreciate as per the market conditions, the central bank will intervene using forex reserves and hold the exchange rate at the pegged amount.
Question 10
1 / -0

Basel-II norms are associated with which of the following aspects of the banking industry?

A
Risk management

B
Manpower planning

C
Retirement benefits for the employees

D
Corporate governance

Solution

Basel II provides guidelines for calculation of minimum regulatory capital ratios and confirms the definition of regulatory capital and an 8% minimum coefficient for regulatory capital over risk-weighted assets. Basel II divides the eligible regulatory capital of a bank into three tiers. These guidelines are related to risk management. Hence, correct answer is option A.

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Open Economy Macroeconomics Test 3

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Open Economy Macroeconomics Test 3

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SHARING IS CARING

Question 1

(i), (ii) and (iii)

(i), (ii) and (iv)

(i), (ii), (iii) and (v)

(i), (ii), (iii) and (iv)

Solution

Question 2

interest rate

bank rate

wage rate

exhange rate

Solution

Question 3

India

USA

UK

Cuba

Solution

Question 4

Current Account

Capital Account

Official Reserve Account

Loss Accounts

Solution

Question 5

Cuba

Dijibouti

Eritrea

USA

Solution

Question 6

Determined by forces of market supply

Determined by forces of market demand

Both A and B

None of the above

Solution

Question 7

The price of one currency in term of another

Price of one quantity in terms of another

Price of one currency in terms of another economies price

Price of one economies price in terms of another economies currency

Solution

Question 8

Uruguay Round Conference

Round Table Conference

Bretton Woods Conference

Simla Conference

Solution

Question 9

It is pegged at a certain level by the market

It is pegged at a certain level by the government

It is pegged at a certain level by individuals

It is pegged at a certain level by the central bank

Solution

Question 10

Risk management

Manpower planning

Retirement benefits for the employees

Corporate governance

Solution

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