CHAPTER -18.

FOREIGN EXCHANGE RATE

Q1 According to former RBI Governor Raghu ram Rajan, India needs this (foreign exchange) reserve buffer to
insulate ourselves because we have no external support.
a) True b) False
Q2 Building the reserve buffer will help India to become less dependent on foreign countries.
a) True b) False
Q 3 If there is revaluation of Indian Rupee, Indian import will decrease and export will decrease.
a) True b) False
Q4 The exchange rate which is determined by the market forces of demand and supply of foreign exchange is called
flexible exchange rate,
a) True b) False
Q5 Export is an important source of supply of foreign exchange.
a) True b) False
Q6 Managed floating is also called dirty floating.
a) True b) False
Q7 People of a country demand foreign exchange because the assets of home country are bought by the foreigners.
a) True b) False
Q8 Hedging function helps to reduce the risk of fluctuation due to change in foreign exchange rate.
a) True b) False
Q9 Fixed exchange rate is fixed by the government in terms of gold reserves
a) True b) False
Q10 The relative price of the foreign goods in term of domestic goods is known as Real Exchange Rate.
a) True b) False
Q 11 Devaluation and depreciation of a currency are one and the same thing
a) True b) False
Q 12 Demand for American goods will rise in India due to appreciation of Indian currency.
a) True b) False
Q13 When price of foreign currency raises the demand for foreign exchange falls.
a) True b) False
Q 14 There is direct relation between foreign exchange rate and the supply of foreign exchange.
a) True b) False
Q 15 The value of currency of one country with that of the currency of another country is called Exchange rate.
a) True b) False
Q 16 Which of the following is true?
(a) Fixed exchange rate is determined by the government
(b) Flexible exchange rate is determined by market forces (demand and supply of foreign exchange)
(c) Both (a) and (b)
(d) None of the above
Q 17 Decrease in demand for foreign goods means decrease in demand for foreign currency.
a) True b) False
Q18 “Devaluation of currency is said to occur when the exchange rate is increased under the fixed exchange rate
system.”
a) True b) False
Q19 Appreciation of Indian rupees will occur when Rs70 have to be paid to exchange one US $ instead of present rate
of Rs.65/$.
a) True b) False
Q 20 In spot market, sale and purchase of foreign currency is settled on a specified future date.
a) True b) False
Q 21 Managed Floating Exchange Rate is decided by market forces but remains within a specific range as decided by
central bank.
a) True b) False
Q 22 Exchange rate is the price of a currency expressed in terms of gold.
a) True b) False
Q 23 Buyers and sellers in foreign exchange rate market wish to buy or sell foreign exchange.
a) True b) False
Q 24 Mint value of a currency implied paper value of that currency.
a) True b) False
Q 25 Managed floating comprises only the element of fixed exchange rate system.
a) True b) False
Q 26 Bretton woods system of exchange rate was replaced by a dirty floating system of exchange rate.
a) True b) False

ANSWER
Q1 a)True
Q2 a)True
Q3 b)False
Q4 a)True
Q5 a)True
Q6 b)True
Q7 b)False
Q8 a)True
Q9 a)True
Q10 b) True
Q 11 b)False
Q 12 a)True
Q13 a)True
Q 14 a)True
Q 15 a)True
Q 16 c)Both (a) and (b)
Q 17 a)True
Q18 a)True
Q19 b)False
Q 20 b)False
Q 21 a)True
Q 22 b)False
Q 23 a)True
Q 24 b)False
Q 25 b)False
Q 26 b)False