Read the following statements carefully:
Statement 1: Keeping other things constant, there exists positive correlation between the price of foreign exchange and its demand.
Statement 2: The foreign exchange rate indicates a country’s purchasing power in international markets.
In the light of the given statements, choose the correct option from the following:
Statement 1: Keeping other things constant, there exists positive correlation between the price of foreign exchange and its demand.
Statement 2: The foreign exchange rate indicates a country’s purchasing power in international markets.
In the light of the given statements, choose the correct option from the following:
Show Hint
- Statement 1 is true and Statement 2 is false.
- Statement 1 is false and Statement 2 is true.
- Both Statements 1 and 2 are true.
- Both Statements 1 and 2 are false.
The Correct Option is B
Solution and Explanation
Analysis of Statement 1: Statement 1 is false. According to the law of demand, there exists an inverse relationship between the price of foreign exchange and its demand. That is, as the price (or exchange rate) of foreign currency increases, its demand generally falls, assuming other factors remain constant. For example, if the US Dollar becomes more expensive in terms of Indian Rupees, Indian consumers and importers will demand less of it.
Analysis of Statement 2: Statement 2 is true. The foreign exchange rate reflects a country’s relative purchasing power in international markets. A stronger domestic currency (lower exchange rate per foreign unit) implies greater purchasing power abroad, while a weaker domestic currency means lower purchasing power. Therefore, the exchange rate serves as a signal of how much goods and services a nation can afford to buy from other countries.
Top CBSE CLASS XII Economics Questions
___________ farming is a system that is helpful in restoring, maintaining and enhancing the ecological balance.
(Choose the correct alternative to fill in the blank):The present day rapid industrial growth in China can be traced back to the economic reforms introduced in 1978, where ________ .
(Choose the correct alternative to fill in the blank):
(i) Initially reforms were initiated in agriculture, foreign trade and investment sectors.
(ii) The policy of dual pricing was adopted.
(iii) The Government revoked the policy of Special Economic Zones.Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below:
Assertion (A): In the recent past, Indian economy has been facing the problem of jobless growth.
Reason (R): Jobless growth refers to a situation where an economy is able to produce more goods and services without generating additional employment.Read the following statements carefully:
Statement 1: India, Pakistan, and China have similar physical endowments but totally different political systems.
Statement 2: Both India and Pakistan laid great emphasis on creating a large private sector.Read the following statements carefully:
Statement 1: India, Pakistan and China have similar physical endowments, but totally different political systems.
Statement 2: Both India and Pakistan laid great emphasis on creating a large private sector.
Top CBSE CLASS XII Foreign Exchange Rate Questions
- Read the following statements—Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Ceteris Paribus, Devaluation of domestic currency leads to an increase in National Income of a nation.
Reason (R): Devaluation of domestic currency refers to reduction in the value of domestic currency with respect to foreign currency, under the fixed exchange rate system.
- Identify, which of the following is not a source of demand for foreign exchange for the Indian economy? (Choose the correct alternative.)
- Under the ________ Exchange Rate System, the Central Bank can control the rise/fall of foreign exchange rate in a range-bound manner. (Fill up the blank with the correct alternative.)
- Market forces of demand and supply, actively interact under ........... exchange rate system to determine the foreign exchange rate. (Choose the correct option to fill in the blank)
- Under the ............ Exchange Rate System, the Central Bank can control the foreign exchange rate in a range bound manner.
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