Multiple Choice Questions and Answers (MCQs) on Foreign Exchange Rate System of India For Civil Services
Question 1 : Who maintains the foreign exchange reserves in India ?
a) Reserve Bank of India
b) State Bank of India
c) Ministry of Finance, Government of India
d) Export-Import Bank of India
Answer : a
Question 2 : When price elasticity of demand of a good is greater than one, expenditure on the good
a) Rises with a price fall
b) Declines with a price fall
c) Rises with a price rise
d) Remains the same irrespective of price rise or fall
Answer : a
Question 3 : Devaluation of a currency means
a) Reduction in the value of currency vis a vis major internationally traded currencies
b) Permitting the currency to seek its worth in the international market
c) Fixing the value of the currency in conjunction with the movement in the value of a basket of predetermined currencies
d) Fixing the value of a currency in multilateral consultation with the IMF, the World Bank, and major trading partners
Answer : a
Question 4 : Which one of the following is implied by interest rate parity?
a) Interest rates are at par in all the countries.
b) Movements in spot rates and forward rates in the foreign exchange market are same.
c)Potential holders of foreign currency deposits do not view these deposits as a desirable asset.
d)A condition that the expected returns on deposits in any two countries are equal when measured in the same currency.
Answer : d
Question 5 : Dutch disease implies
a) The appreciation of a nation’s currency resulting from large inflow of foreign exchange on account of discovery of costly minerals and the resulting loss in international competitiveness on account of such appreciation.
b) The depreciation of a nations’s currency resulting from the exploitation of a domestic resource that was previously exported and the resulting loss of international competitiveness in the nation’s external sector.
c) A fall in the valuation of Dutch currency and consequential rise in the value of other currencies.
d) A fall in the valuation of Dutch currency and its resultant adverse impact on other nation’s currencies.
Answer : a
Question 6 : In the recent times, renminbi has undergone devaluation. The devaluation of renminbi may not have which of the following impacts:
a) Promotion of China’s imports from India.
b) Promotion of China’s exports to India.
c) Promotion of China’s exports to Africa.
d) Reduction in China’s imports from Europe.
Answer : a
Question 7 : Which of the following statements is/are correct?
If on account of fall in price of a commodity, the total expenditure
- Decreases, then the demand for the commodity is elastic
- Increases, then the demand for the commodity is inelastic
- Remains constant, then the demand for the commodity is unitary elastic
Select the correct answer using the codes given below:
a) 1 only
b) 1 and 3 only
c) 3 only
d) 1, 2 , and 3
Answer : c
Question 8 : The sharp depreciation of rupee in the forex market can occur on account of
- Flight of capital from India
- Fall in exports to European markets
- Inflation in India
- Rise in global oil prices
Select the correct answer using the codes given below:
a) 1, 2, and 3 only
b) 1, 2, and 4 only
c) 3 and 4 only
d) 1, 2, 3, and 4
Answer : d
Question 9 : Consider the following statements:
- Devaluation of a currency may promote exports.
- Prices of a country’s products in the international market may fall due to devaluation.
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer : c
Question 10 : Consider the following statements:
Under the flexible exchange rate system, the negative balance of payments situation can be managed by
- Changes in the exchange rate
- International flow of money and reserves
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer : c