Foreign Exchange Rate for CUET Economics

AnswerB · the price of one currency in terms of another

1. ₹84 per dollar means one dollar costs ₹84.

AnswerD · depreciated

1. More rupees are now needed to buy one dollar, so each rupee is worth less in dollars.

AnswerB · Only II

1. More rupees per dollar is a depreciation of the rupee. I is false.

2. Each dollar spent abroad now costs more rupees. II is true.

AnswerA · $0.0125

1. ₹1 = $1 ÷ 80 = $0.0125.

AnswerC · ₹42,000

1. Price in rupees = 500 × 84 = ₹42,000.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. A ₹840 shirt costs $10.5 at ₹80 per dollar but $10 at ₹84 per dollar. R explains A.

AnswerA · Only I

1. Fewer rupees per dollar means a stronger rupee. I is true.

2. With a stronger rupee, a dollar-priced import costs fewer rupees, so imports become cheaper. II is false.

AnswerB · $1.25

1. £1 buys ₹105, and ₹105 buys 105 ÷ 84 dollars.

2. 105 ÷ 84 = 1.25, so £1 ≈ $1.25.

AnswerD · A is false, but R is true.

1. R is true: fewer rupees per dollar is what appreciation means.

2. So exporters earn fewer rupees and their goods cost more abroad: appreciation hurts them. A is false.

AnswerC · 5%

1. The dollar's price in rupees rose by 4 on a base of 80.

2. 4 ÷ 80 × 100 = 5%.

AnswerA · Indians importing goods from abroad

1. Importers must pay in foreign currency, so they buy it with rupees.

2. The other three bring foreign currency in: they add to supply.

AnswerC · A-II, B-IV, C-I, D-III

1. Payments abroad create demand for foreign currency; receipts from abroad create supply.

AnswerB · foreign goods become cheaper in rupees, so imports rise

1. A cheaper dollar makes imports, foreign travel and study abroad cheaper, so more dollars are demanded.

AnswerC · exports become cheaper for foreigners and rise

1. Each dollar now buys more Indian goods, so foreigners buy more from India and bring in more dollars.

AnswerC · ₹80 per dollar

1. Equilibrium is where D$ meets S$, at E.

2. E is at ₹80 per dollar, with $40 billion traded.

AnswerA · Only I

1. Tourists exchange their currency for rupees. I is true.

2. Buying foreign shares needs foreign currency: that is demand, not supply. II is false.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Speculative demand rises when a currency is expected to gain. R explains A.

AnswerC · an excess supply of dollars, so the rate falls

1. Above the equilibrium rate of ₹80, S$ lies to the right of D$: more dollars are offered than wanted.

2. Sellers cut the price of dollars until the rate returns to ₹80.

AnswerB · Only II

1. Fees paid abroad need foreign currency: demand, not supply. I is false.

2. Export earnings bring foreign currency in. II is true.

AnswerB · Foreign investors pulling money out of Indian shares

1. Fewer dollars come in at every exchange rate, so supply falls.

AnswerA · demand and supply in the forex market

1. The rate moves freely to the level where the quantity demanded equals the quantity supplied.

AnswerD · It depreciates from ₹80 to ₹90 per dollar

1. Equilibrium moves from E₁ (₹80) to E₂ (₹90).

2. More rupees per dollar means the rupee has depreciated.

AnswerC · A rise in the world price of crude oil, which India imports

1. A costlier oil bill means importers need more dollars at every exchange rate: demand shifts right.

2. The other three add to the supply of dollars.

AnswerA · It appreciates from ₹80 to ₹70 per dollar

1. Equilibrium moves from E₁ (₹80) to E₂ (₹70).

2. Fewer rupees per dollar: the rupee has appreciated.

AnswerB · A surge in foreign portfolio investment into Indian shares

1. Foreign investors bring in dollars to buy rupee assets, adding to supply at every rate.

2. The other three raise the demand for dollars.

AnswerA · Only I

1. The market clears itself, so reserves are not needed to hold any level. I is true.

2. A floating rate can swing, which creates uncertainty for traders. II is false.

AnswerD · rise by ₹40 lakh

1. At ₹80: 10 lakh × 80 = ₹8 crore. At ₹84: 10 lakh × 84 = ₹8.4 crore.

2. Rise = ₹40 lakh: depreciation helps exporters.

AnswerD · A is false, but R is true.

1. R is true: that is what depreciation means.

2. So dollar-priced imports cost more rupees, not fewer. A is false.

AnswerD · depreciate, as the supply of dollars shifts left

1. Fewer exports mean fewer dollars coming in at every rate: S$ shifts left.

2. With demand unchanged, the rupee price of a dollar rises above ₹80: the rupee depreciates.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Depreciation makes exports cheaper abroad and imports dearer at home, closing the gap. R explains A.

AnswerA · set by the government or central bank and kept there

1. The authority announces a rate and buys or sells foreign currency to hold it.

AnswerD · A-III, B-I, C-IV, D-II

1. Depreciation and appreciation happen under floating rates; devaluation and revaluation are decisions under a fixed rate.

AnswerB · $20 billion

1. At ₹70, $50 billion is demanded (B) but only $30 billion is supplied (A).

2. The shortage of 50 − 30 = $20 billion must be met from reserves.

AnswerB · devalue the rupee towards ₹80 per dollar

1. The rupee is overvalued at ₹70, so there is a lasting shortage of dollars.

2. Devaluing towards the market rate of ₹80 removes the shortage.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Stable rates make planning and pricing easier. R explains A.

AnswerA · Only I

1. Reserves are needed to buy or sell currency at the fixed rate. I is true.

2. The authority can devalue or revalue. II is false.

AnswerC · pegged to the US dollar, which was convertible into gold

1. It was a system of fixed but adjustable rates against the dollar; it ended in 1971.

AnswerB · Only II

1. Revaluation raises the currency's value, making exports dearer abroad. I is false.

2. II is the definition of devaluation.

AnswerB · fixed by the amount of gold each currency could be exchanged for

1. Each currency had a fixed gold value, so the rate between two currencies was the ratio of their gold values.

AnswerC · devaluation of the rupee by about 9%

1. An official cut in the rupee's value is a devaluation.

2. ₹1 was worth 1/70 dollar and is now 1/77: a fall of (77 − 70) ÷ 77 ≈ 9% (the dollar's price rose 10%).

AnswerC · A is true, but R is false.

1. A is true: a lasting shortage of foreign exchange drains reserves until the rate must change.

2. R is false: a central bank can print its own currency, not foreign currency.

AnswerB · the market sets the rate, with central bank intervention

1. It mixes a floating rate with intervention, sometimes called a 'dirty float'.

AnswerD · managed floating

1. Since 1993 the rupee's value has been set in the market, with the RBI stepping in to curb excessive volatility.

AnswerA · sell dollars from its reserves

1. Selling dollars adds to their supply in the market, which supports the rupee.

AnswerD · buy dollars in the market and add them to reserves

1. Buying dollars raises demand for them, which slows the rupee's rise.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Market setting gives flexibility; intervention gives some stability. R explains A.

AnswerA · Only I

1. The aim is to limit volatility, not to defend a fixed level. I is true.

2. Intervening means buying and selling dollars, which needs reserves. II is false.

AnswerA · A-IV, B-III, C-II, D-I

1. Floating is market only; fixed is government only; managed floating mixes the two; the gold standard tied currencies to gold.

AnswerA · a market-determined exchange rate for the rupee

1. After a brief dual-rate system in 1992, the rupee's rate was unified and left to the market in March 1993, with RBI intervention.

AnswerB · Only II

1. The RBI does not fix a rate; the market sets it. I is false.

2. Selling dollars adds to supply; buying them adds to demand. II is true.