100 Important MCQs of Foreign Exchange Rate chapter Class 12
Looking for Multiple Choice Questions (MCQs) of Foreign Exchange Rate Chapter of Macroeconomics Class 12 CBSE and other State Board.
I have made a list of very Important MCQs of this chapter
Multiple Choice Questions of Foreign Exchange Rate Chapter of Class 12
Let’s Practice the MCQs.
1. Exchange Rate refers to the rate at which the following is exchanged.
a) Goods
b) Services
c) Currencies
d) All the above
Ans:- c)
2. Floating Exchange Rates is determined by:
a) Mutual consultations between coutries
b) Banking systems
c) Market Forces
d) None of the above
Ans:- c)
3. Managed floating exchange rate is called ‘managed’ because it is influenced by the steps taken by:-
a) Government
b) Central Bank
c) World Bank
d) IMF
Ans:- b)
4. When exchange rate in terms of domestic currency rises:-
a) Exports become cheaper
b) Imports become cheaper
c) Exports become costiler
d) NO effect on imports
Ans:- a)
5. When exchange rate falls in terms of domestic currency:-
a) Domestic currency depreciates
b) Foreign currency appreciates
c) Domestic currency appreciates
d) NO effect on the domestic currency
Ans:- c)
6. In the foreign exchange market that market price of US Dollar rises from ₹ 60 to ₹ 61. This means that:-
a) Rupee has depreciated
b) US Dollar has appreciated
c) Both a) and b)
d) None of the above
Ans:- c)
7. Price of one currency is relation to other currencies in the internatinoal exchange market is known as:-
a) Equilibrium rate
b) fixed exchange rate
c) exchange rate
d) flexible exchange rate
Ans:- c)
8. The rate which is determined by the government is known as:-
a) flexible exchange rate
b) Fixed Exchange Rate
c) floating exchange rate
d) None of these
Ans:- b)
9. The exchange rate at which demand for foreign currency becomes equal to its supply, is called
a) Equal rate of exchange
b) Mint Parity
c) Equilibrium exchange rate
d) all of these
Ans:- c)
10. What is the relationship between ‘demand for foreign exchange’ and ‘exchange rate’:-
a) Inverse
b) Direct
c) One to one
d) No Relationship
Ans:- a)
11. When supply of foreign exchange increases, the equilibrium exchange rate will:-
a) Rise
b) fall
c) not change
d) either rise or fall
Ans:- b)
12. Demand for foreign currency depends upon:-
a) repayment of international loans
b) investment in rest of the world
c) direct foreign investment in the domestic economy
d) both a) and b)
Ans:- d)
13. Due to depreciation of foreign currency, the supply of foreign currency in domestic economy will:-
a) increase
b) not change
c) either increase or decrease
d) decrease
Ans:- d)
14. Direct foreign investment is a source of:-
a) demand for foreign exchange
b) supply of foreign exchange
c) both a) and b)
d) none of these
Ans:- b)
15. When the exchange rate rises due to managed floating, it is called:
a) devaluation
b) appreciation
c) depreciation
d) revalutaion
Ans:- c)
16. If ₹ 120 are required to buy $ 1, instead of ₹ 100 earlier:-
a) Domestic currency has appreciated
b) Domestic currency has depreciated
c) rupee value of import bill will increase
d) both b) and c)
Ans:- d)
17. Equilibrium exchange rate occurs when:-
a) supply of foreign exchange > demand for foreign exchange
b) supply of foreign exchange = demand for foreign exchange
c) supply of foreign exchange < demand for foreign exchange
d) both a) and b)
Ans:- b)
18. Dirty floating is related to:
a) fixed system of exchange rate
b) flexible system of exchange rate
c) both of these
d) none of these
Ans:- b)
19. Which of the following items raises the supply of foreign exchange?
a) Export of goods from China
b) Indian students going to USA for MBA
c) Donation of 50 million $ received from Microsoft
d) Purchase of land in England
Ans:- a), c)
20. A Change from ₹ 140 = 2 $ to ₹ 60 = 1$ indicates that ₹ is:-
a) Appreciating
b) Depreiating
c) Neither a) nor b)
d) Either a) or b)
Ans:- a)
21. ________refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through
intervention:
a) Flexible Exchange Rate System
b) Managed Floating Rate System
c) Dirty Floating
d) Fixed Exchange Rate System
Ans:- b)
22. Depreciation of domestic currency leads to rise in:
a) Exports
b) Imports
c) Both a) and b)
d) Neither a) nor b)
Ans:- a)
23. Imports of goods and services raises the__________of foreign exchange:
a) Supply
b) Demand
c) Both a) and b)
d) Neither a) nor b)
Ans:- b)
24. Flexible Exchange Rate System is also known as:
a) Pegged Exchange Rate System
b) Dirty Floating
c) Floating Exchange Rate
d) Both b) and C)
Ans:- c)
25. Devaluation of Currency means:-
a) Reduction in the value of domestic currency by the market forces
b) Reduction in the value of domestic currency by the government
c) Both a) and b)
d) Neither a) nor b)
Ans:- b)
26. 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
Ans:- a)
27. 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 unaffected
Ans:- b)
28. Other things remaining the same, when foreign currency becomes cheaper, the
effect on national income is likely to be:
a) Positive
b) Negative
c) Positive and negative both
d) No effect
Ans:- b)
29. The value of US Dollar $1 has gone down from ₹73 to ₹70. It means that:
a) Indian rupee has appreciated
b) US Dollar has depreciated
c) Both a) and b)
d) No effect
Ans:- c)
30. If ₹70 are required to buy 1 US dollar, instead of ₹ 68, it will lead to rise in:-
a) Exports to USA
b) Imports from USA
c) Both a) and b)
d) Either a) or b)
Ans:- a)
31. When there is appreciation of currency:-
a) Imports become costlier
b) Exports become Cheaper
c) Imports become cheaper
d) No effect on Exports
Ans:- c)
32. Due to the depreciation of the foreign currency, the supply of foreign currency in the domestic economy will:
a) Increase
b) Decrease
c) Either a) or b)
d) Not Change
Ans:- b)
33. When the Government wants to strengthen the rupee, it__________________foreign currency and __________domestic currency.
a) Buys, Sells
b) Sells, Sells
c) Sells, Buys
d) Buys, Buys
Ans:- c)
34. Under Floating Exchange rate system, Exchange rate is determined by:-
a) Central Bank
b) Government
c) Market forces of demand and supply
d) None of these
Ans:- c)
35. Under Managed Floating Exchange Rate System, if rupee is getting deprecated fast, then RBI:
a) Sell dollars in the foreign exchange market
b) Purchase dollars in the foreign exchange market
c) Print more Currency Notes
d) None of these
Ans:- a)
36. If ₹ 74 are required to buy $ 1, instead of ₹ 70 earlier, it means:
a) Domestic currency has depreciated
b) Foreign Currency has appreciated
c) Domestic Currency has appreciated
d) Both a) and b)
Ans:- d)
37. By Exchange Rate we mean:-
a) Quantum of domestic currency needed to pay for foreign currency
b) Quantum of foreign currency needed to pay for another foreign currency
c) Rate at which foreign currency is bought and sold
d) All of these
Ans:- d)
38. Identify which of the following statements is true?
a) The flexible exchange rate system gives the government more flexibility to maintain a large stock of foreign exchange reserves
b) In the managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
c) in the Managed floating exchange rate system, the central bank intervenes to moderate exchange rate fluctuations
d) In the Fixed exchange rate system, market forces fix the exchange rate.
Ans:- c)
39. Identify Which of the following statements is true?
a) The flexible exchange rate system gives the government more flexibility to maintain
large stocks of foreign exchange reserves.
b) In the managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
c) In the managed floating exchange rate system, the central bank intervenes to moderate exchange rate fluctuations.
d) In the fixed exchange rate system, market forces fix the exchange reate.
Ans:- c)
40. 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
Ans:- a)
41. 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 unaffected
Ans:- b)
42. Foreign exchange refers to:
a) the price of one currency in terms of gold in the domestic market.
b) the price of one currency determined by the government of other countries
c) the price of one currency in relation to other currencies in the international
money market
d) none of these.
Ans:- c)
43. The exchange rate is the price of a currency expressed in terms of:
a) gold
b) metal
c) another currency
d) None of these
Ans:- c)
44. Which of the following statements is not true:-
a) Depreciation of the foreign currency leads to the fall in exports
b) Devaluation of the domestic currency leads to a rise in imports
c) Appreciation of domestic currency leads to rise in exports
d) Appreciation of foreign currency leads to fall in exports
Ans:- a)
45. Identify the correctly matched pair from column A to that of Colum B:
| Column – A | Column – B |
| (1) Invest in bonds in a foreign country | (a) Factor affecting demand of Foreign Currency |
| (2) Purchase by foreigners in the domestic market | (b) Factor effecting the Fixed Exchange Rate |
| (3) Change in Trade | (c) Factor affecting Foreign Trade |
| (4) Monetary and Fiscal Policy | (d) Factor affecting the calculation of National Income |
Option:-
a) 1 – (a)
b) 2 – (b)
c) 3 – (c)
d) 4 – (d)
Ans:- a)
46. Identify the correct pair of given in Column B by matching them with respective concepts
in Column A:
| Column – A | Column – B |
| (1) Reduction in the value of the domestic currency by the government | (a) Devaluation |
| (2) Reduction in the value of the domestic currency through market forces | (b) Appreciation |
| (3) Increase in the value of the domestic currency by the government | (c) Depreciation |
| (4) Increase in the value of the domestic currency through market forces | (d) Revaluation |
Option
a) 1 – (a)
b) 2 – (b)
c) 3 – (c)
d) 4 – (d)
Ans:- a)
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