Foreign Exchange Rate

1. The price of one currency in terms of other currency is called:

a) Foreign exchange Rate
b) Flexible rate of exchange
c) Current rate of exchange
d) None of the above
Answer: a) Foreign exchange Rate
2. The decrease in the value of domestic currency in relation to foreign
currency due to fluctuations in the foreign exchange rate is
a) Devaluation
b) Appreciation
c) Depreciation
d) None of the above
Answer: c) Depreciation
3. Due to depreciation of domestic currency,
a) Exports rise
b) Imports rise
c) Exports falls
d) None of the above
Answer: a) Exports rise
4. The increase in the value of domestic currency in relation to foreign
currency due to fluctuations in foreign exchange rate is called
a) Depreciation
b) Devaluation
c) Appreciation
d) Revaluation
Answer: c) Appreciation
5. Due to appreciation of domestic currency,
a) Exports rise
b) Imports rise
c) Imports falls
d) None on the above
Answer: b) Imports rise
6. Which of the following is correct?
a) Depreciation in value of domestic currency is caused because of fluctuations in
demand and supply
b) Devaluation in value of domestic currency is done intentionally by the
Government
c) Appreciation is done intentionally by the Government
d) Both (a) and (b)
Answer: d) Both (a) and (b)
7. Which of the following is not correct in value of domestic currency
a) Devaluation is done by the Government
b) Revaluation is done by the market fluctuations of demand and supply
c) Appreciation is caused due to change in demand and supply of foreign exchange
d) None of the above
Answer: b) Revaluation is done by the market fluctuations of demand and supply
8. The decrease in the value of foreign exchange rate which is done
intentionally by the Government is called
a) Appreciation
b) Depreciation
c) Devaluation
d) Revaluation
Answer: c) Devaluation
9. The increase in the value of foreign exchange rate which is done
intentionally by the Government is called
a) Appreciation
b) Depreciation
c) Revaluation
d) Devaluation
Answer: c) Revaluation
10. Devaluation takes place under which system?
a) Fixed exchange rate system
b) Flexible exchange rate system
c) Managed floating exchange rate system
d) None of the above
Answer: a) Fixed exchange rate system
11. Revaluation takes place under which system?
a) Flexible exchange rate system
b) Fixed exchange rate system
c) Managed floating exchange rate system
d) None of the above
Answer: b) Fixed exchange rate system
12. Depreciation takes place under which system?
a) Fixed exchange rate system
b) Flexible exchange rate system
c) Managed floating exchange rate system
d) None of the above
Answer: b) Flexible exchange rate system
13. Appreciation takes place under which system?
a) Fixed exchange rate system
b) Flexible exchange rate system
c) Managed floating exchange rate system
d) None of the above
Answer: b) Flexible exchange rate system
14. The value of US Dollar $1 has increased form Rs. 60 to Rs. 70. It means:
a) Rupee has appreciated
b) Rupee has depreciated
c) Both (a) and (b)
d) None of the above
Answer: b) Rupee has depreciated
15. The value of US Dollar $1 has fallen form Rs. 70 to Rs. 68. It means:
a) Currency is depreciated
b) Currency is appreciated
c) Both (a) and (b)
d) None of the above
Answer: b) Rupee has appreciated
16. Flexible exchange rate system is also known as
a) Pegging exchange rate system
b) Floating exchange rate system
c) Dirty floating
d) Both (b) and (c)
Answer: b) Floating exchange rate system
17. Managed floating is also known as
a) Pegging exchange rate system
b) Floating exchange rate system
c) Dirty floating
d) All of the above
Answer: c) Dirty floating
18. Floating exchange rate system is also known as
a) Fixed exchange rate system
b) Free exchange rate system
c) Flexible exchange rate system
d) Both (b) and (c)
Answer: d) Both (b) and (c)
19. When the value of a currency is fixed in terms of some other currency, it is
called:
a) Parity value
b) Free value
c) Money value
d) None of the above
Answer: a) Parity value
20. Which of the systems are covered under fixed exchange rate system?
a) Gold standard system
b) Adjustable peg system
c) Managed system
d) Both (a) and (b)
Answer: d) Both (a) and (b)
21. In which system of exchange rate, the exchange rate does not change
continuously?
a) Fixed exchange rate
b) Flexible exchange rate
c) Managed floating exchange rate
d) None of the above
Answer: a) Fixed exchange rate
22. Due to increase in demand of foreign currency, there is …. in the value of
domestic currency.
a) Appreciation
b) Depreciation
c) Devaluation
d) Revaluation
Answer: b) Depreciation
23. Due to decrease in demand of foreign currency, there is —- in the value of
domestic currency.
a) Appreciation
b) Depreciation
c) Devaluation
d) Revaluation
Answer: a) Appreciation
24. Due to increase in supply of foreign currency, there is—- in the value of
domestic currency.
a) Appreciation
b) Depreciation
c) Devaluation
d) Revaluation
Answer: a) Appreciation
25. Due to decrease in supply of foreign currency, there is —- in the value of
domestic currency.
a) Appreciation
b) Depreciation
c) Devaluation
d) Revaluation
Answer: b) Depreciation
26. What is the system in which the foreign currencies are bought and sold?
a) Foreign exchange market
b) Securities market
c) Both (a) and (b)
d) None of the above
Answer: a) Foreign exchange market
27. Foreign exchange market is a:
a) System
b) Place
c) Both (a) and (b)
d) None of the above
Answer: a) System
28. Which of the following are the buyers and sellers of foreign exchange?
a) Individual and firms
b) Foreign exchange brokers
c) Commercial and central bank
d) All of the above
Answer: d) All of the above
29. ________rate for India, is the value , at which all foreign currencies will be
exchanged for Indian Rupee.
a) Foreign exchange
b) Foreign investment
c) Foreign capital
d) None of these
Answer: a) Foreign exchange
30. Depreciation of domestic currency is the ____ in value of domestic currency
in relation to foreign currency.
a) Increase
b) Decrease
c) No effect
d) None of these
Answer: b) Decrease
31. ________ of foreign exchange is done intentionally by the Government.
a) Devaluation
b) Depreciation
c) Appreciation
d) All of these
Answer: a) Devaluation
32. Devaluation and revaluation of foreign currency is done _____
a) By Market Forces
b) Intentionally by the government
c) By Financial institutions
d) All of these
Answer: b) Intentionally by the government
33. Fixed exchange rate is fixed by the Government in terms of ____.
a) Currency
b) Gold Reserves
c) Fixed assets
d) All of these
Answer: b) Gold reserves
34. Dirty floating is also called _______.
a) Managed floating
b) Hybrid exchange rate
c) Flexible exchange rate
d) None of these
Answer: a) Managed floating
35. ______ refers to the price of one currency in terms of other.
a) Foreign exchange rate
b) Foreign return rate
c) Foreign investment rate
d) None of these
Answer: a) Foreign exchange rate
36. ________ is a mixture of fixed exchange rate system and flexible exchange
rate system.( Fill in the blank with correct alternative).
a) Managed floating exchange rate
b) Variable exchange rate
c) Floating exchange rate
d) None of the above
Answer: (a) Managed floating exchange rate
37. Government has to hold huge reserves of foreign exchange to stabilize
foreign exchange rate in the presence of_______ rate. ( Fill in the blank with the
correct alternative).
a) Flexible exchange rate system
b) Floating exchange rate system
c) Fixed exchange rate system
d) Managed floating exchange rate system
Answer: (c) Fixed exchange rate system
38. Demand of foreign exchange signifies_______.( Fill in the blank with correct
alternative).
a) Inflow of foreign exchange
b) Flow of foreign exchange
c) No change in foreign exchange
d) Outflow of foreign exchange
Answer: (d) Outflow of foreign exchange
39. Read the following statement given below and choose the correct
alternative
Statement 1- If foreign exchange rate of a country increases, Demand of
foreign exchange will also increase
Statement 2- If foreign exchange rate increases supply of foreign exchange will
also increase
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct
Answer: (d) Statement 1 is incorrect and statement 2 is correct
40. Read the following statement given below and choose the correct
alternative
Statement 1- Depreciation is the fall in the value of domestic currency against
foreign currency.
Statement 2- Depreciation occurs under the floating exchange rate system.
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct
Answer: (a) Both are correct
41. Read the following statement given below and choose the correct
alternative
Statement 1- Revaluation leads to decrease in exports of a country.
Statement 2- Revaluation leads to decrease in imports of a country
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct
Answer: (c) Statement 1 is correct and statement 2 is incorrect
42. Read the following statement given below and choose the correct
alternative
Statement 1- Flexible exchange rate leads to wastage of resources
Statement 2- Under flexible exchange rate system government doesn’t need to
hold huge reserves of foreign exchange
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct
Answer: (d) Statement 1 is incorrect and statement 2 is correct
43. Read the following statement given below and choose the correct
alternative
Statement 1- Under flexible exchange rate system economy doesn’t get the
advantage of open market
Statement 2- Under fixed exchange rate system economy gets the advantage of
open market
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct
Answer: (b) Both are incorrect
44. Read the following statement given below and choose the correct
alternative
Statement 1- Equilibrium under, floating exchange rate system is determined where
demand for foreign exchange is equals to supply of foreign exchange
Statement 2- Floating exchange rate system results in uncertainty in economy
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct
Answer: (a) Both are correct
45. Choose the correctly matched pair from the following
Column A Column B

A. Fixed exchange rate 1. Depends on market forces

B. Flexible exchange rate 2. Officially declared by government

C. Managed exchange rate 3. Similar to fixed exchange rate

D. Floating exchange rate 4. Provides the benefits of open Market to

system economy

a) A-1
b) B-2
c) C-3
d) D-4
Answer: (d) D-4
46. Choose the correctly matched pair from the following
Column A Column B

A. Demand of foreign exchange Inflow of foreign exchange

B. Supply of foreign exchange 2. Outflow of foreign exchange

 C. Foreign exchange reserves 3. Currency other than domestic currency

D. Foreign exchange 4. Stock of currencies other than domestic currency

a) A-2
b) B-3
c) C-1
d) D-4
Answer: (a) A-2
47. Choose the correctly matched pair from the following
Column A Column B
A. Demand of foreign exchange 1. Exchange rate = Price of foreign currency
B. Supply of foreign exchange 2. To undertake foreign tour
C. Excess demand 3. Exchange rate < price of foreign currency
D. Excess supply 4. Receipts from export of goods and services

a) A-4
b) B-1
c) C-3
d) D-2
Answer: (c) C-3
48. “Exports and inflow of currency increased in an economy”. What can be the
possible reason for this
a) Result of Revaluation
b) Result of appreciation
c) Both (a) and (b)
d) Result of depreciation
Answer: (d) Result of depreciation
49. “The value of 1 dollar increased from ₹60- ₹65”. This is a situation of ;
a) Depreciation
b) Appreciation
c) Revaluation
d) Devaluation
Answer: (a) Depreciation
50. “Under flexible exchange rate system there is no problem of
disequilibrium”. Why does this happen.
a) Because there is no fear of Devaluation
b) Because this system is self adjusting
c) Because it exposes the economy to open market
d) Because resources are fully optimised
Answer: (b) Because this system is self adjusting
51. “Managed floating exchange rate is also called dirty floating exchange rate,
because.
a) A country uses it against other countries for self interest
b) Government has to hold huge reserves of foreign exchange
c) Both (a) and (b)
d) None of the above
Answer: (a) A country uses it against other countries for self interest
52. Read the following statement given below and choose the correct
alternative
Assertion (A)- Foreign currency flows into the home country
Reason (R)- Exports by a country leads to purchase of its domestic goods and
services by the foreigners.
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of
assertion
c) Assertion us true but reason is not
d) Reason is true but assertion is not.
Answer: (a) Both assertion and reason are true. Reason is the correct explanation of
assertion
53. Read the following statement given below and choose the correct
alternative
Assertion (A)- Under fixed exchange rate system, exchange rate is independent of
demand and supply of foreign exchange
Reason (R)- Under fixed exchange rate system, exchange rate is officially declared
by the government
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of
assertion
c) Assertion is true but reason is not
d) Reason is true but assertion is not
Answer: (b) Both assertion and reason are true. Reason is not the correct
explanation of assertion
54. Read the following statement given below and choose the correct
alternative
Assertion: (A)- Demand for foreign exchange leads to inflow of foreign exchange
Reason: (R)- Investment made by foreigners for purchasing financial and physical
assets causes inflow for foreign exchange
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of
assertion
c) Assertion is true but reason is not
d) Reason is true but assertion is not
Answer: (a) Both assertion and reason are true. Reason is the correct explanation of
assertion
55. Read the following statement given below and choose the correct
alternative
Assertion: (A)- If foreign exchange rate increases the demand for foreign exchange
will fall
Reason: (R)- There is an inverse relationship between demand for foreign exchange
and foreign exchange rate
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of
assertion
c) Assertion is true but reason is not
d) Reason is true but assertion is not
Answer: (a) Both assertion and reason are true. Reason is the correct explanation of
assertion
56. Read the following statement given below and choose the correct
alternative
Assertion: (A)- Increase in foreign exchange rate makes Indian goods and services
relatively cheaper for foreigners
Reason: (R)- There is a negative relationship between supply of foreign exchange
and foreign exchange rate
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of
assertion
c) Assertion is true but reason is not
d) Reason is true but assertion is not
Answer: (c) Assertion is true but reason is not
Read the case study given below and answer the questions that follows
Central banks (like RBI in India) follow up in the interest of their separate
governments. Their essential job is to guarantee the solidness of the public
money. A central bank incidentally applies its impact in the foreign exchange
market by either expanding or decreasing its country’s cash supply.
This will lower or raise the worth of the public money. National banks utilize
this strategy to settle quick changes in the worth of the country’s cash that can
result from both inward factors, like swelling, or outer elements. Varieties in
organic market can likewise cause changes in the worth of a specific cash.
At the point when interest for a money goes up (that is, when more purchasers
need to buy it), so does the cost of that cash on the lookout. This is known as
enthusiasm for the money.
On the other hand, when there is lower interest for a specific cash, the cost of
that money frequently goes down; this is called deterioration of the money. On
account of the gigantic measures of money being exchanged every day, even a
negligible part of a percent increment or lessening in worth can altogether
affect how a lot (or how little) a cash is exchanged.
57. What role does the Central Bank play in Foreign Exchange Market?
a) Provides financial assistance
b) Stabilizes the value of domestic currency
c) Increases the value of domestic currency
d) None of these
Answer: (b) Stabilizes the value of domestic currency
58. Under which foreign exchange rate system does the central bank intervene
in the foreign exchange market to stop fluctuations in the domestic currency?
a) Fixed Exchange rate system
b) Flexible exchange rate system
c) Managed Floating Rate system
d) All of these
Answer: (c) Managed Floating Rate system
59. Central bank may _____ the value of domestic currency.
a) Raise
b) Lower
c) Both A and B
d) None of these
Answer: (c) Both A and B
60. Appreciation of domestic currency leads to ________ in Exports of domestic
currency
a) Increase
b) Decrease
c) No change
d) None of the above
Answer: (b) Decrease
61. Depreciation of domestic currency leads to______in imports of domestic
currency
a) Inflow
b) Increase
c) Decrease
d) No change
Answer: (c) Decrease
62. Both appreciation and depreciation occurs under (choose the correct
alternative)
a) Managed floating exchange rate
b) Fixed exchange rate
c) Flexible exchange rate
d) None of the above
Answer: (c) Flexible exchange rate