CBSE Class 12 Economics Open Economy Macroeconomics MCQs Set 02

Question. Which one is a source of the demand for foreign exchange?
(a) Imports of Goods and Services from Abroad
(b) Investment in Foreign Nations
(c) Gift Scheme to Foreign Nations
(d) All of the options

Answer : D

Question. Balance of trade means:
(a) Capital transactions
(b) Import and export of goods,
(c) Total credit and debit
(d) All of the options

Answer : B

Question. Which one is the invisible item of Balance of Payment?
(a) Banking
(b) Shipping
(c) Communication
(d) All of the options

Answer : D

Question. In which of the following categories are economic transactions of balance of trade recorded?
(a) Visible items;
(b) Invisible items;
(c) Capital items;
(d) All of the options

Answer : A

Question. Which one is a king of exchange rate ?
(a) Fixed Exchange Rate
(b) Flexible Exchange Rate
(c) Both (a) and (b)
(d) None of the options

Answer : C

Question.Which one is a merit of flexible exchange rate ?
(a) Simple System
(b) Continuous Adjustments
(c) Improves Balance of Payments
(d) All of the options

Answer : D

Question. Which one is a kind of fixed exchange rate ?
(a) Gold Standard System of Exchange Rate
(b) Bretton Woods System of Exchange Rate
(c) Both (a) and (b)
(d) None of the options

Answer : C

Question. Other things remaining the same, when in a country the market price of foreign currency falls, national income is likely:
(a) To rise
(b) To fall
(c) To rise or to fall
(d) To remain affected

Answer : B

Question. Which items are included in the balance of trade?
(a) Invisible Item
(b) Capital Transfer
(c) Visible Item
(d) All of the options

Answer : C

Question. The exchange rate at which demand for foreign currency becomes equal to its supply, is called:
(a) Equal rate of exchange;
(b) Unequal rate of exchange;
(c) Equilibrium rate;
(d) All of the options

Answer : C

Question. What is the relationship between demand for foreign exchange and exchange rate?
(a) Inverse;
(b) Direct;
(c) One to one;
(d) No relationship

Answer : A

Question. What is the relationship between supply of foreign exchange and exchange rate?
(a) Inverse;
(b) Direct;
(c) One to one;
(d) No relationship

Answer : B

Question. If Rs 150 are required to buy $ 2, instead of Rs100 earlier, then:
(a) Domestic currency has depreciated;
(b) Domestic currency has appreciated;
(c) Rupee value of import bill will increase;
(d) Both (a) and (c) (d)

Answer : D

Question. Which one is the visible item of Balance of Payments ?
(a) Machine
(b) Cloth
(c) Cement
(d) All of the options

Answer : D

Question. Trade of visible items between the countries is known as ________
(a) Balance of Payment
(b) Balance of Trade
(c) Deficit Balance
(d) All of the options

Answer : B

Question. Which one is a demerit of the fixed exchange rate?
(a) Ignores National Interests
(b) Restricted Movement of Capital
(c) Sudden Fluctuations in Exchange Rates
(d) All of the options

Answer : D

Question. The price of one currency in terms of another is known as _________
(a) Foreign exchange rate
(b) Trade rate
(c) Interest rate
(d) Balance of Payment

Answer : A

Question. Decrease in the value the foreign commodities is known as _________
(a) Revaluation
(b) Devaluation
(c) Deflation
(d) All of the options

Answer : A

Question. The operation of future delivery in the foreign exchange market is known as ________
(a) Spot market
(b) Current market
(c) Forward market
(d) Domestic market

Answer : C

Question. Which one is the item of the Current Account?
(a) Import of Visible Items
(b) Expenses of Tourists
(c) Exports of Visible Items
(d) All of the options

Answer : D

Fill in the blanks:

Question. ________ refers to the rate at which one currency is exchanged for the other.
Answer: Foreign exchange rate

Question. _______ rate of exchange refers to the rate of exchange as determined by the government.
Answer: Fixed

Question. _______ market deals with current sales and purchases of foreign exchange.
Answer: Foreign Exchange

Question. _______ market deals with such sale and purchase of foreign exchange, which are contracted today but are implemented sometimes in the future.
Answer: Forward

Question. Balance of ________ is a summary statement of all economic transactions between a country and the rest of the world.
Answer: Payment

Question. The balance of _______ is the difference between visible exports and visible imports.
Answer: Trade

Question. Balance of Payment is always _________
Answer: Positive

Question. Balance of Payment is a ______ concept as compared to the balance of trade.
Answer: broader

Question. If exports exceed imports, then BoP is _________
Answer: favourable

Question. Balance of trade includes only ________ items.
Answer: visible

Question. Bretton woods system is also known as ________ border system.
Answer: Adaptable

Question. There is ________ relation between foreign exchange rate and the supply of foreign exchange.
Answer: Direct

Question. By devaluation, the value of currency ________
Answer: Reduces

Question. ________ items are included in the balance of trade.
Answer: Visible

Question. Balance of payment always remains ________
Answer: Balanced

Question. The value of the currency of one country with that of the currency of another country is called ________
Answer: Exchange rate

State true or false:

Question. Balance of Payments includes only visible items.
Answer: False

Question. Balance of trade is a part of the Balance of Payments.
Answer: True

Question. The balance of trade is always positive.
Answer: False

Question. The balance of Payments may be positive or negative.
Answer: False

Question. The current account records visible items, invisible items, and unilateral transfers.
Answer: True

Question. Capital account records are such transactions, which cause a change in the asset and liability status of the residents of a country or of its government.
Answer: True

Question. Exports of tea is an example of visible items.
Answer: True

Question. Banking and insurance are examples of visible items.
Answer: False

Question. Forward market deals with current sales and purchases of foreign exchange.
Answer: False

Question. Demand for foreign exchange also depends upon payments of international loans.
Answer: True

Question. Balance of trade includes both visible and invisible items.
Answer: False

Question. Balance of trade is a part of the Balance of payments.
Answer: True

Question. Devaluation is declared by the government.
Answer: True

Question. The balance of payment is always balanced.
Answer: True

Question. For export promotion, the help of devaluation is taken.
Answer: True

Question. The increasing population in developing countries has a direct impact on economic growth.
Answer: False

Question. Export promotion is one of the ways of correcting the Balance of payments.
Answer: False

Match the following:

Question.
‘A’
1. Balance of payments
2. Balance of Trade includes
3. India’s Balance of payments
4. Determination of flexible exchange rate
5. In favour of foreign exchange rate

‘B’
(a) Always favourable
(b) Both visible and invisible items
(c) Includes only visible items
(d) Foreign banks issue letter of credit in large demand over banks of the country
(e) Forces of demand and supply in foreign exchange markets.
Answer:
1. Balance of payments - (b) Both visible and invisible items
2. Balance of Trade includes - (c) Includes only visible items
3. India’s Balance of payments - (a) Always favourable
4. Determination of flexible exchange rate - (e) Forces of demand and supply in foreign exchange markets.
5. In favour of foreign exchange rate - (d) Foreign banks issue letter of credit in large demand over banks of the country

Question.
Column-I
1. Spot market
2. Forward market
3. Hedging
4. Above the line items
5. Below the line items

Column-II
(A) Risk management
(B) Accommodating items
(C) Deals with current transactions
(D) Autonomous items
(E) Deals with future transactions
Answer:
1. Spot market - (C) Deals with current transactions
2. Forward market - (E) Deals with future transactions
3. Hedging - (A) Risk management
4. Above the line items - (D) Autonomous items
5. Below the line items - (B) Accommodating items