Balance of Payments - Online Test
Q1. Point out a merit of flexible exchange rate
Answer : Option D
Explaination / Solution:
Flexible exchange rate is determined by the forces of demand and supply i.e. where demand equals supply eliminating the undervaluation or overvaluation of currencies.
Q2. Point out a demerit of fixed exchange rate
Answer : Option B
Explaination / Solution:
yes it contradicts with the objectives of free markets .It can be explained as
suppose,
· If a currency is falling below its band the government will have to intervene. It can do this by buying sterling but this is only a short term measure.
· The most effective way to increase the value of a currency is to raise interest rates. This will increase hot money flows and also reduce inflationary pressures.
· However higher interest rates will cause lower AD and economic growth, if the economy is growing slowly this may cause a recession and rising unemployment
Q3. Point out a demerit of flexible exchange rate
Answer : Option B
Explaination / Solution:
flexible exchange rates creates instablity because there is too frequent fluctuations in exchange rate under it create uncertainty about the exact amount of receipts and payments in foreign exchange transactions.And this instability hampers foreign trade and capital movements between the countries.
Q4. A component of current account of the BOP account is
Answer : Option A
Explaination / Solution:
Current account of balance of payment is trade balance & trade balance includes exports and imports of goods and services.
Q5. Currency depreciation occurs when
Answer : Option C
Explaination / Solution:
No Explaination.
Q6. Balance of current account includes
Answer : Option D
Explaination / Solution:
No Explaination.
Q7. Balance of capital account includes
Answer : Option B
Explaination / Solution:
No Explaination.
Q8. Identify one of the types of balances in BOP account
Answer : Option D
Explaination / Solution:
No Explaination.
Q9. Autonomous Items are also called
Answer : Option A
Explaination / Solution:
No Explaination.
Q10. Accommodating Items are also called
Answer : Option B
Explaination / Solution:
No Explaination.
