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Balance of Payments Test - 5

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Balance of Payments Test - 5
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  • Question 1
    1 / -0

    The upward sloping supply curve for the foreign exchange reflects

    Solution

    As the price of foreign currency increases it's supply increses and as it's price decreases it's supply decreases, other factors remaining same.

  • Question 2
    1 / -0

    If exchange rate increases, this will make

    Solution

    The purchasing power of foreigners increase in terms of the  domestic currency.

  • Question 3
    1 / -0

    The demand curve for foreign exchange is

    Solution

    At lower exchange rate more foreign currency is demanded and at higher exchange rate less foreign currency is demanded.

  • Question 4
    1 / -0

    The balance of payment is a more comprehensive than balance of trade concept. It is

    Solution
    BOT records only merchandise transactions with rest of the world  whereas BOP records all transactions with rest of the world.
  • Question 5
    1 / -0

    Balance of capital account includes

    Solution

    Borrowing and lending is done through capital.

  • Question 6
    1 / -0

    Balance of capital account includes

    Solution

    Borrowing and lending is done through capital.

  • Question 7
    1 / -0

    Balance of visibles is the

    Solution

    As per definition .

  • Question 8
    1 / -0

    The equilibrium exchange rate is determined at the point where the

    Solution

    At this point , the market for foreign exchange gets cleared.

  • Question 9
    1 / -0

    If the Supply of foreign exchange rises, demand schedule remaining the same, the exchange rate will rise. It is

    Solution

    Excess supply of an entity always lead to deflation of value. Same happens with foreign exchange.

  • Question 10
    1 / -0

    The supply curve of foreign exchange is

    Solution

    More of foreign currency is supplied at higher exchange rates in forex market.

  • Question 11
    1 / -0
    If the demand for foreign exchange rises, supply schedule remaining the same, the exchange rate will rise. It is
    Solution

    Excess demand of an entity always leads to inflation of a value. Same happens with foreign exchange.

  • Question 12
    1 / -0

    Accommodating Items are also called

    Solution

    These are those transactions that occur because of other activities like government financing.

  • Question 13
    1 / -0

    The supply of foreign exchange and the exchange rate has

    Solution
    As foreign currency appreciates, imports for them become cheaper. So, they supply more foreign currency in the forex market.
  • Question 14
    1 / -0

    If mpc = 0.8  income multiplier  will be

    Solution

    We know that multiplier , K=1/mps,

    Now,mps=1-mpc=1-0.8=0.2

    Hence, k= 1/0.2=5

  • Question 15
    1 / -0

    When price of a foreign currency rises its supply also rises.

    Solution
    When price of foreign currency increases the goods and services of the other country become cheaper. So, they buy more from that country and supply more of foreign currency in the forex market .
  • Question 16
    1 / -0

    The downward sloping demand curve for the foreign exchange reflects

    Solution

    Negative slope always reflects inverse relationship.

  • Question 17
    1 / -0

    Balance of invisibles is the

    Solution

    We know Net exports =exports -imports. Same is the case with invisibles .

  • Question 18
    1 / -0

    Autonomous Items are also called

    Solution

    Because these items are recorded in BOP as first items  before calculating deficit or surplus.

  • Question 19
    1 / -0

    Devaluation is a

    Solution
    Devaluation refers to fixed exchange regime where exchange rate is determined exogenously, by central bank.
  • Question 20
    1 / -0

    Balance of current account includes

    Solution

    These items add to the current flow of goods and services and are included in national income.

  • Question 21
    1 / -0
    If the level of autonomous investment in an economy is Rs.200 crores and consumption function of the economy is :

    C=80+0.75Y

    What will be the equilibrium level of income?

    Solution

    For equilibrium level of income,

    Y=C+I .......... (1)

    C=80+0.75Y, I=200 crores

    Substituting the values of C and I in (1) we have Y=80+0.75Y+200

    (Y-0.75Y)=80+200=280

    0.25Y=280

    Y=280×100/25=1120

  • Question 22
    1 / -0

    Depreciation is a

    Solution

    Depreciation refers to flexible exchange regime where exchange rate is determined by market forces .

  • Question 23
    1 / -0

    If c = 0.8 and m = 0.3, the open economy multiplier will be

  • Question 24
    1 / -0
    The demand for foreign exchange and the exchange rate has
    Solution

    More foreign currency is earned when exchange rate is lower and less foreign currency is earned when foreign exchange rate high.

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