Class XII Economics - Foreign Exchange Rate & Balance of Payment -2021

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CASE STUDY- 1 Read the following hypothetical text and answer the given questions: - Exchange rate between Indian Rupee and US Dollar has changed from 71. 49 (November, 2020) to 72.82 (January 2021) through changes to market forces of demand and supply. Therefore, it is believed that India's balance of payments this year going to be ‘’very verystrong’’ Commerce and Industry Minister Piyush Goyal said on Monday.1. Change from 1$ = 71.49 INR to 72.82 is called as………………. *

1 point

Appreciation

Depreciation

Revaluation

Devaluation

2. This kind of determination is applicable in ………. system of exchange rate *

1 point

Flexible exchange rate system

Fixed exchange rate system

Managed floating

None of above

CASE STUDY- 2 Read the following hypothetical text and answer the given questions: -India's foreign exchange reserves have jumped by $100 billion in 10 months to a recordhigh of $534.5 billion. The rise has been led by strong foreign fund inflows recently and decline in import bill due to dip in crude oil prices and trade impact following COVID-19pandemic. Reduced imports of gold also cut down India's import bill. 1. Import of Petroleum from Iran will be mentioned: *

1 point

Credit side of Capital Account

Debit side of Capital Account

Credit side of Current Account

Debit side of Current Account

2. Increase in import duty of gold will lead to: *

1 point

Reduction in import of gold

Import of gold will increase

No effect on import of gold

Outflow of Foreign Exchange

3. India's foreign exchange reserves has jumped high. The reason may be: *

1 point

Inflow foreign exchange

Outflow of foreign exchange

Autonomous payments over Autonomous Receipts

All the above

CASE STUDY- 3 Read the following hypothetical text and answer the given questions: - Each nation has its own currency when monetary transactions are conducted within the national borders, payments are made in the currency of that country for example Indian currency is called rupee. To be more exact it is called Indian rupee payments within the national borders Of India are made in Indian rupees. Similarly, each other nation has its own currency for example Pakistan currency is called Pakistani rupee USA currency US dollar Kuwait currency Kuwaiti Dinar UAE currency dirham and so on payments within the nation borders of Pakistan are made in Pakistani rupees payment within the national border of USA is USA dollars, etc. When transactions are conducted across National borders one currency must be converted into another. Conversion rate between two currencies is decided by two ways first fixed exchange rate second floating or flexibleexchange rate. 1. Exchange rate refer to the rate at which the following is exchanged: *

1 point

Goods

Services

Currencies

All the above

2. Who fixed the flexible exchange rate: *

1 point

Market force

Government

Both a and b

None of these

3. ___________refers to a system in which exchange rate for a currency is fixed by the government. *

1 point

Fixed exchange rate

flexible exchanged rate

floating exchange rate

none of above

ASSERTION AND REASON BASED QUESTIONS 1. Assertion (A): Appreciation of domestic currency means a rise in the price of domestic currency Reason (R): Appreciation leads to increase in exports. *

1 point

Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason(R) are true, and Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is true, but Reason (R) is false.

Assertion (A) is false, but Reason (R) is true.

2. Assertion (A): A country always tries to balance the BOP i.e., balance in current account equals to balance in capital account. Reason (R): Balanced BOP indicates stable economic relation with rest of the world. *

1 point

Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true.

3. Assertion (A): Accommodating items of trade are undertaken to maintain the balance in the BOP account. Reason (R): Accommodating items are net consequences of autonomous transactions thatare undertaken to correct disequilibrium in autonomous items of BOP. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

4. Assertion (A): All transactions recorded in Balance of Payment are autonomous transactions. Reason (R): Autonomous transactions are recorded in both current and capital account of BoP. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true.

5. Assertion (A): India’s current account balance (CAB) recorded a surplus of US$ 19.8 billion (3.9% of GDP) in Q1 of 2020-2021. Reason (R): There has been a steeper decline in merchandise imports relative to exports in past few years. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

6. Assertion (A): Depreciation of domestic currency leads to rise in exports. Reason (R): Depreciation of domestic currency makes domestic currency relatively cheaper, which leads to increase in exports. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

7. Assertion (A): Fixed Exchange rate system involves active involvement of central bank/ government of the respective countries. Reason (R): In fixed exchange rate system, once the exchange rate is decided it is usually kept as fixed in order to maintain the stability in economic transactions. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

8. Assertion (A): Managed Floating Exchange rate system is a combination of fixed and flexible exchange rate systems. *

1 point

Reason (R): In managed floating exchange rate system, central bank decides the limit ofBoth Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

9. Assertion (A): Increased lending abroad are recorded on the debit side of the capital account. Reason (R): Lending affect the assets and liabilities of the economy and involves outflow of income. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

10.Assertion (A): Purchase of second-hand machinery from abroad is not recorded in balance of payment. Reason (R): Sale and purchase of second-hand goods from abroad are not included in the estimation of national income. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is true, but Reason (R) is false.

Assertion (A) is false, but Reason (R) is true

11.Assertion (A): Current account transactions bring about change in the capital stock of a country. Reason (R): 'Make in India' will increase supply (inflow) of foreign exchange in India causing improvement in the balance of payments position. *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

12.Assertion (A): If an Indian buys a UK Car Company, it renters’ capital account transactions as a debit item. Reason (R): Sale of assets like sale of share of an Indian company to a Chinese customer is a credit item *

1 point

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

Assertion (A) is true but Reason (R) is false.

Assertion (A) is false but Reason (R) is true

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