ISC SEMESTER 2 EXAMINATION

FOREIGN EXCHANGE AND BOP QUESTION PAPER

ECONOMICS
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Maximum Marks: 40
Time allowed: One and a half hour
Candidates are allowed an additional 10 minutes for only reading the
paper. They must NOT start writing during this time.
--------------------------------------------------------------------------------- Answer
all questions in Section A, Section B and Section C. The intended marks
for questions or parts of questions are given in brackets. [ ]
SECTION A – 8 MARKS
Question 1
i) The Balance of Trade shows a deficit of ₹300crore. The value of exports
is ₹500 crore. What is the value of imports? [1]
a) ₹200 crore
b) ₹800 crore
c) ₹250 crore
d) ₹1100 crore
ii) What is likely effect of depreciation of a currency on the country’s
foreign trade? [1]
a) Encourages import to a country
b) Discourages import from rest of the world
c) Both (a) and (b)
d) None of These
iii) In the foreign exchange market that market price of US Dollar rises
from ₹60 to ₹61. This means that:
[1]
a) Rupee is depreciated
b) US Dollar has appreciated
c) Both (a) and (b)
 d) None of these
iv) Balance of Payments is a _____ concept. [1]
a) Stock
b) Flow
c) Both (a) and (b)
d) None of these
v) There is an _____ relationship between ‘demand for foreign exchange’
and ‘exchange rate’. [1]
vi) When supply of foreign exchange increases, the equilibrium exchange
rate will ____. [1]
vii) Autonomous transactions take place on _____ Account [1]
viii) Import of Machinery is recorded in the ___ Account and ‘Borrowings
from abroad’ is recorded in the ____ Account. [1]

SECTION B – 12 MARKS
Answer the following questions briefly.

Question 2 [2]
Briefly explain two reasons for the adverse Balance of Payments in any
economy.
Question 3 [2]
How is Devaluation of currency different from Depreciation of currency? Give
any two differences.
Question 4 [2]
Why is flexible exchange rate called free rate of exchange?
Question 5 [2]
How is the rate of exchange of a currency determined?
Question 6 [2]
What do you mean by
i) Foreign direct investment
ii) Portfolio investment
OR
What does a deficit in balance of trade account indicate?
Question 7 [2]
List two items each of current account and capital account of the balance of
payment accounts.

SECTION C – 20 MARKS
Question 8 [4]
Why do autonomous capital flows and accommodating capital flows take place?
OR
How does Rate of exchange helps in correction in Balance of Payment
Disequilibrium?
Question 9 [4]
What is meant by visible and invisible items of balance of payments account?
Give two example of invisible items.
Question 10 [4]
What to you mean by depreciation of a currency? Explain with an example.
Question 11 [4]
Why does the demand for foreign currency fall and supply rises when its price
rises? Explain.
Question 12 [4]
Distinguish between Balance of Trade account and current account balance of
BOP account.