Free The Open Economy 01 Practice Test - 12th Grade - Commerce
Question 1
What is the relationship between supply of foreign exchange and exchange rate?
No relationship
One to one
Direct
Inverse
SOLUTION
Solution : C
The supply of foreign exchange varies positively and directly with the exchange rate.
Question 2
Which of the following transactions are recorded in the current account of the balance of payments?
Import and export of goods and services
Transfers from one country to the other
Both (a) and (b)
None of these
SOLUTION
Solution : C
The current account records imports and exports, as well as transfer payments.
Question 3
Balance of payment is in disequilibrium when:
Current account balance + capital account balance is some negative number
Current account balance + capital account balance is not equal to zero
Current account balance + capital account balance is some positive number
All of the above
SOLUTION
Solution : A
The balance of payments shows disequilibrium if the sum of current and capital account balance is not equal to zero, or is equal to a positive or a negative value.
Question 4
Disequilibrium in the balance of payments leads to:
none of these
both (a) and (b)
decrease in official reserves with RBI
increase in official reserves with RBI
SOLUTION
Solution : B
Disequilibrium in the BoP can cause an increase or a decrease in the official reserves, depending on whether there is a deficit or a surplus.
Question 5
Cause of BoP imbalance relates to:
neither (a) nor (b)
autonomous items
accomodating items
both (a) and (b)
SOLUTION
Solution : B
Autonomous items cause an imbalance in the BoP, and accommodating items correct these imbalances.
Question 6
The balance of trade shows a deficit of Rs 4,000 crore and the value of imports are Rs 10,000 crore. What is the value of exports?
2,000
4,000
6,000
8,000
SOLUTION
Solution : C
Exports = Balance of Trade + Imports = -4,000 + 10,000 = 6,000
Question 7
The balance of payments of a country includes:
Official transfers of foreign currency
Smuggling transactions
Loans and aid
Both a and c
SOLUTION
Solution : D
The BOP includes both official transfers of currency and loans and aid.
Question 8
Final balance of payments of an economy is:
Always in a deficit
Always in a surplus
Always balanced
Subject to wide fluctuation
SOLUTION
Solution : C
The balance of payments is always balanced.
Question 9
A debit item is:
A positive item
A negative item
Inflow item
Outflow item
SOLUTION
Solution : B and D
A debit item is a negative item.
Question 10
Which of the following are features of foreign portfolio investments?
Long-term
Short-term
High risk
Low risk
SOLUTION
Solution : B and C
FPI is generally short-term investment and is riskier than FDI.