CBSE Class 12 Economics Open Economy Macroeconomics MCQs Set 03

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: Accommodating items are those items of BoP which:
a) Are not determined by profit motive
b) Are conditioned by the positive or negative BoP status
c) Deal with capital transfers only
d) Both (a) and (b)
Answer: d

Question: Forward market is that market which:
a) Handles transactions of foreign exchange meant for future delivery
b) Handles current transactions
c) Handles current as well as future transactions
d) None of these
Answer: a

Question: BoP is measured as:
a) Difference between visible items of exports and imports
b) Difference between invisible items of exports and imports
c) Difference between external and internal flow of gold
d) Difference between all receipts of foreign exchange and payments of foreign exchange
Answer: d

Question: Balance of trade is measured as:
a) Difference between import and export of goods
b) Difference between import and export of services
c) Difference between import and export of capital
d) Difference between all imports and all exports
Answer: a

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 these
Answer: c

Question: Spot market is that market where:
a) Only spot or current transactions are handled
b) Foreign exchange transactions are meant for future delivery
c) Exchange rate is determined instantly
d) Both (a) and (c)
Answer: d

Question: Cause of BoP imbalance relates to:
a) Autonomous items
b) Accommodating items
c) Both (a) and (b)
d) Neither (a) nor (b)
Answer: a

Question: Which of the following transactions are recorded in the current account of the balance of payments?
a) Import and export of goods and services
b) Transfers from one country to the other
c) Both (a) and (b)
d) None of these
Answer: c

Question: According to the adjustable peg system (Bretton Woods System) of exchange rate:
a) Different currencies were pegged to one currency (US dollar)
b) US dollar was assigned gold value at a fixed price
c) Parity between two currencies was determined by the quantity of gold contained in them
d) All of these
Answer: d

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: In which of the following categories are economic transactions of balance of trade recorded?
a) Visible items
b) Invisible items
c) Capital transfers
d) All the above
Answer: a

Question: If balance of trade is (-) Rs.600 crore and value of exports is Rs.500 crore, then the value of imports will be:
a) Rs.1,300 crore
b) Rs.300 crore
c) Rs.1,100 crore
d) Rs.1,200 crore
Answer: c

Question: Autonomous items are related to those transactions which:
a) Are determined by motive of profit
b) Are not concerned with the equilibrium status of BoP
c) Both (a) and (b)
d) None of these
Answer: c

Question: If Rs.150 are required to buy $2 instead of Rs.100 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)
Answer: a

Question: Which of the following items relate to BoP?
a) Foreign investment
b) Loans
c) NRI remittance
d) All of these
Answer: d

Question: Disequilibrium in balance of payments means:
a) Surplus balance of payments
b) Deficit balance of payments
c) Both (a) and (b)
d) None of these
Answer: c

Fil lIn The Blanks

Question: BoP surplus leads to an/a ________in official reserves. (increase/decrease)
Answer: Increase

Question:___________= Compensation of employees + Investment income.(Factor income /Transfer income)
Answer: Factor income

True/ False

Question: Financial transactions relate to international sale and purchase of real assets.(true/false)
Answer: False

Question: Current account records all payments to rest of the world as debit.(True/False)
Answer: True

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. The market where the national currencies are traded for one another is known as ________
(a) Domestic exchange market
(b) Foreign exchange market
(c) Bazaar
(d) Shop
Answer: (b)

Question. Increase in the value of foreign commodities is known as _________
(a) Revaluation
(b) Devaluation
(c) Inflation
(d) None of these
Answer: (b)

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

Question. What is the cause of the devaluation of any country’s currency?
(a) Increase in the domestic inflation rate
(b) Domestic real interest rates are less than foreign interest rates
(c) Much increase in the income
(d) All of these
Answer: (d)

Question. The operation of daily nature in the foreign exchange market is known as ________
(a) Spot market
(b) Forward market
(c) Domestic market
(d) International market
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. Hybrid in management of fixed and flexible exchange rate is known as ________
(a) Managed to float
(b) Crawling Peg
(c) Wider Bands
(d) None of these
Answer: (a)

Question. When was the gold standard abandoned?
(a) 1930’s
(b) 1920’s
(c) 1940’s
(d) 1950’s
Answer: (b)

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 these
Answer: (b)

Question. When the import and export of visible items are equal, the situation is known as _______
(a) Balance of Trade
(b) Balance of Payment
(c) Trade Surplus
(d) Trade Deficit
Answer: (a)

Question. When there is a favourable balance of trade?
(a) \( X > M \)
(b) \( X = M \)
(c) \( X < M \)
(d) None of these
Answer: (a)

Question. When there is unfavourable balance of trade?
(a) \( X > M \)
(b) \( X = M \)
(c) \( X < M \)
(d) None of these
Answer: (c)

Question. The trade of visible and invisible items is known as _________
(a) Balance of Payments
(b) Balance of Trade
(c) Deficit of interest
(d) Profit
Answer: (a)

Question. Other things remaining unchanged, when in a country the price of foreign currency rises, national income is:
(a) Likely to rise
(b) Likely to fall
(c) Likely to rise and fall both
(d) Not affected
Answer: (a)

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 one is the king of the exchange rate?
(a) Fixed Exchange Rate
(b) Flexible Exchange Rate
(c) Both (a) and (b)
(d) None of the above
Answer: (c)

Question. Which of the following is true?
(a) Fixed exchange rate is determined by the government
(b) Flexible exchange rate is determined by market forces (demand and supply of foreign exchange)
(c) Both (a) and (b)
(d) None of the above
Answer: (c)

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 above
Answer: (c)

Question. Which one is a merit of the fixed exchange rate?
(a) Promotes Foreign Trade
(b) Induces Foreign Capital
(c) Increases Capital Formation
(d) All the above
Answer: (d)

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 the above
Answer: (d)

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

Question. Which one is a demerit of the flexible exchange rate?
(a) Bad Results of Low Rate
(b) Uncertainty
(c) Instability in Foreign Exchange
(d) All the above
Answer: (d)

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 the above
Answer: (d)

Question. Foreign exchange is determined by:
(a) Demand for foreign currency
(b) Supply of foreign currency
(c) Demand and supply in the foreign exchange market
(d) None of the above
Answer: (c)

Question. The forms of foreign exchange market is/are:
(a) Spot market
(b) Forward market
(c) Both (a) and (b)
(d) None of these
Answer: (c)

Question. The foreign exchange rate is determined by:
(a) Government
(b) Bargaining
(c) World Bank
(d) Demand and Supply forces
Answer: (d)

Question. By exchange rate we mean:
(a) How much local currency we have to pay for a foreign currency
(b) How much of a foreign currency we have to pay for another foreign currency
(c) The rate at which foreign currency is bought and sold
(d) All of these
Answer: (d)

Question. Balance of Trade =?
(a) Export of Visible Items – Imports of Visible Items
(b) Export of both Visible and Invisible Items – Import of both Visible and Invisible Items
(c) Import of Visible Items – Export of Visible Items
(d) None of the above
Answer: (a)

Question. Which items are included in the Balance of Payments?
(a) Visible Items
(b) Invisible Items
(c) Capital Transfers
(d) All the above
Answer: (d)

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

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

Question. Which one is the feature of Balance of Payment?
(a) Systematic Accounts
(b) Fixed Time Period
(c) Comprehensiveness
(d) All the above
Answer: (d)

Question. Which account is included in the composition of the Balance of Payments?
(a) Current Account
(b) Capital Account
(c) Both (a) and (b)
(d) None of the above
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 the above
Answer: (d)

Question. Which one is the item of Capital Account?
(a) Government Transaction
(b) Priva Transactions
(c) Foreign Direct Investment
(d) All the above
Answer: (d)

Question. The component(s) of Balance of Payment is/are:
(a) Current Account
(b) Capital Account
(c) Both (a) and (b)
(d) None of these
Answer: (c)

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

Question. Balance of Trade means:
(a) Capital Transaction
(b) Import and export of goods
(c) Total debit and credit
(d) All the above
Answer: (b)

Question. The reason for the imbalance in the balance of payment is:
(a) Natural Reasons
(b) Economic Reasons
(c) Political Reasons
(d) All of these
Answer: (d)

Question. Structure of balance of payment includes which account:
(a) Current account
(b) Capital account
(c) Both (a) and (b)
(d) None of these.
Answer: (c)

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

Question. Measures to improve the adverse balance of payment includes:
(a) Currency devaluation
(b) Import substitution
(c) Exchange control
(d) All of the above
Answer: (d)

Question. Foreign Exchange Rate is determined by:
(a) Demand for foreign currency
(b) Supply of foreign currency
(c) Demand and supply in the foreign exchange market
(d) None of these
Answer: (c)

Question. Types of Foreign Exchange Market are:
(a) Spot market
(b) Forward market
(c) Both (a) and (b)
(d) None of these
Answer: (c)