Assertion Reason MCQs of Foreign Exchange Rate (Macroeconomics Class 12)
Looking for important Assertion Reason based MCQs of Foreign exchange rate chapter with answers of Macroeconomics class 12 CBSE, ISC, and other State Boards.
We have compiled very important Assertion Reason Based Multiple choice Questions with answers of the Foreign Exchange Rate chapter of economics class 12
Assertion Reason Multiple Choice Questions of Foreign Exchange Rate with answers of Economics class 12
Let’s Practice
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Depreciation of domestic currency leads to a rise in exports to foreign countries
Reason (R): Due to the depreciation of the domestic currency, more goods can be purchased from India with the same amount of foreign currency.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Demand for foreign exchange and exchange rate moves in the same direction.
Reason (R): When the exchange rate rises domestic goods become cheaper in the international market.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – b)
Explanation:- When demand for foreign exchange rises, the exchange rate also rises. When exchage rate rises in turn domestic currency become cheaper in international market and foreigners can purchase more quantity in the same foreign exchange.
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Appreciation of domestic currency means a rise in the price of the domestic currency with respect to foreign currency.
Reason (R): Appreciation leads to an increase in Exports
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – c)
Explanation:- Appreciaton of Domestic currency means When domestic currency become stronger, and with less amount of domestic currency fetch more foreign exchange. When ₹74 = $1 becomes to ₹60 = $1 this is called appreciation of domestic currency. Appreciation of domestic currency leads to decrease in exports. As goods becomes costlier to foreigners.
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): In the case of the Floating Exchange Rate System, the currency price of a nation is set by the forex market based on supply and demand relative to other currencies.
Reason (R): Government intervenes in the foreign exchange market under the Floating Exchange Rate System to restrict the fluctuations in the exchange rate with certain limits.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – c)
Explanation:- Govt intervene in managed floating rate not in the floating rate.
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): A rise in the price of foreign exchange will increase demand for imports.
Reason (R): A rise in the price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good. This reduces demand for imports, other things remain constant.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – d)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Make in India, the campaign initiated by the government leads to a fall in the foreign exchange rate.
Reason (R): Through Make in India campaign, production of goods will be within the territory of India. That would decrease import, results in decrease demand for foreign exchange rate. In turn foreign exchange rate would fall.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Other things being equal, an increase in demand for foreign exchange leads to up valuation of foreign currency.
Reason (R): Increase in demand for foreign exchange shows a shortage of foreign currency in the Indian reserve.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – c)
Explanation:- Increase in demand for foreign exchange, leads to rise in price of foreign exchange. Increase in demand of foreign exchange indicate high import trend. It does not mean shortage of foreign currnecy in the indian reserve as we follow managed floating rate system.
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): A rise in the price of foreign exchange increases India’s exports.
Reason (R): A rise in the price of foreign exchange will reduce the foreigner’s cost (in terms of US) while purchasing products from India other things remaining constant increase India’s exports.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Managed Floating Rate System is a hybrid of a fixed exchange rate and a flexible exchange rate system.
Reason (R): Central Bank maintains reserves of foreign exchange under Managed Floating Rate System to ensure that the exchange rate stays within the targeted value.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): The USA has accused China of currency devaluation to promote its exports.
Reason (R): Devaluation of currency makes Chinese goods cheaper in the international market. Thus, it promotes exports of Chinese goods and may adversely impact the production and sale of importing countries (USA).
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Fixed exchange rate system is more stable as compared to a floating exchange rate.
Reason (R): Free play of demand and supply of foreign exchange brings ambiguity in the system.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): An increase in demand for imported goods raises the foreign exchange rate.
Reason (R): Demand for foreign exchange will increase in order to make the payment for imported goods. Supply of foreign exchange remaining unchanged, increase in demand will cause the exchange rate to rise.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Buying foreign goods is an expenditure from our country and it becomes the income of that foreign country.
Reason (R): The purchase of foreign goods or imports decreases the domestic demand for goods and services in our country.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – b)
Explanation:- Both statements are true, but Reason does not explain how buying foreign goods is expenditure of the country and income of foreign country.
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Both Devaluation and Depreciation of currency encourage the exports of a country.
Reason (R): Depreciation of currency takes place due to Government, while Devaluation takes place due to market forces of demand and supply.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – c)
Explanation:- Devaluation is done by government and depreciation happen due to market forces of demand and supply.
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Managed Floating exchange rate system is a hybrid system of the exchange rate used by most of the countries in recent time.
Reason (R): Excessive fluctuation in the exchange rate system is checked by the central authority under dirty floating exchange rates.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Import of goods and services reflects the demand for foreign currency.
Reason (R): Import of goods and services shows the inflow of foreign exchange.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – c)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): The demand curve of foreign currency is negatively sloped
Reason (R): If the price of foreign currency increases, it becomes costlier for the home country.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – a)
Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Fixed exchange rate system is also known as a floating exchange rate system.
Reason (R): In a fixed exchange rate system, the govt decides and fixed the foreign exchange rate.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Ans – d)
