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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
BOP is measured as:A. difference between invisible items of exports and importsB. difference between visible items of exports and importsC. difference between internal and external flow of goldD. difference between all receipts and payments of foreign exchange |
| Answer» Correct Answer - D | |
| 2. |
Explain the effect of fall in price of foreign exchange on exports. |
| Answer» Fall in price of foreign currency (domestic currency appreciation) implies that domestic currency has become more expensive in terms of foreign currency. This reduces the demand for exports. | |
| 3. |
Foreign exchange rate in India is on the rise recently. What will be its impact on exports and how? |
| Answer» Rise in foreign exchange rate means that one unit of foreign currency is worth more rupees than earlier. So one unit of foreign currency can now buy more goods and services from India. It makes Indian exports cheaper to the foreign buyers. This is likely to increase exports. | |
| 4. |
Other things remaining unchanged, when in a country the price of foreign currency rises, national Income is _____A. likely to riseB. likely to fallC. likely to rise and fall bothD. not affected |
| Answer» Correct Answer - A | |
| 5. |
Exports of goods and services raises _____of foreign exchange.A. supplyB. demandC. both (a) and (b)D. neither (a) nor (b) |
| Answer» Correct Answer - A | |
| 6. |
Exports of goods and services raises the ______ of foreign exchange.A. demandB. supplyC. both (i) and (ii)D. neither (i) nor (ii) |
| Answer» Correct Answer - B | |
| 7. |
Balance of Payments is a______concept.A. StockB. FlowC. Both (a) and (b)D. Neither (a) nor (b) |
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Answer» Correct Answer - B B. Balance of Payments is a Flow concept. |
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| 8. |
An accounting statement that provides a systematic record of all the economic transactions, between residents of a country and the rest of the world is________.A. Balance of PaymentsB. Balance of TradeC. Government BudgetD. None of these |
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Answer» Correct Answer - A A. An accounting statement that provides a systematic record of all the economic transactions, between residents of a country and the rest of the world is Balance of Payments. |
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| 9. |
Outline the steps required to be taken in deriving saving curve from the given consumption curve. Use diagram. ltBrgt OR Given consumption curve, derive saving curve and state the steps taken in the process of derivation. Use diagram. |
| Answer» (See section 7.5 in the book.) | |
| 10. |
From the following data about a government budget, find out (a) Revenue deficit, (b) Fiscal deficit and (c) Primary deficit: `{:(,"(Rs arab)"),((i) "Capital receipts net of borrowings",95),((ii) "Revenue expenditure",100),((iii)" Interest payment",10),((iv) "Revenue receipts",80),((v) " Capital expenditure",110):}` |
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Answer» Revenue deficit = (ii) - (iv) `= 100 - 80` `= 20` (Rs arab) Fiscal deficit `= (v + ii -iv -i)` `= 110 + 100 - 80 - 95` `= 35` (Rs arab) Primary deficit = Fiscal defict - (iii) `= 35 - 10` `= Rs 25` arab |
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| 11. |
An economy is in equilibrium. From the following data, calculate the marginal propensity to save: Given the behaviour of marginal product and total product as more and more units of only one input are employed while keeping other inputs as constant. (a) Income = 10,000 (b) Autonomous consumption = 500 (c) Consumption expenditure = 8,000 |
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Answer» `Y=C+I` `Y=overset(-)C+MPC(Y)` `8000=500+MPC(10000)` `MPC=(8000-500)/(10000)=(7500)/(10000)=0.75` `MPS=1-MPC=1-0.75=0.25 or 1//4` |
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| 12. |
Source of money supply in an economy isA. Central BankB. Commercial banksC. Both (a) and (b)D. Government |
| Answer» Correct Answer - C | |
| 13. |
Foreign embassies in India are a part ofA. Economic territory of IndiaB. Geographical territory of IndiaC. Both (a) and (b)D. None of the above |
| Answer» Correct Answer - B | |
| 14. |
Money supply includes _______A. all deposits in bankB. only demand deposits in bankC. only term depositsD. only time deposits in bank |
| Answer» Correct Answer - B | |
| 15. |
If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be (Choose the correct alternative) (a) greater than 2 (b) less than 2 (c) equal to 2 (d) equal to 5 |
| Answer» Correct Answer - (a) greater than 2 | |
| 16. |
Balance of payment is a _____ conceptA. flowB. stockC. both (i) and (ii)D. neither (i) nor (ii) |
| Answer» Correct Answer - A | |
| 17. |
Giving reason explain how the following should be treated in estimation of national income : (i) Payment of interest by a firm to a bank (ii) Payment of interest by a bank to an individual (iii) Payment of interest by an individual to a bank |
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Answer» (i) Payment of interest by a firm to bank is treated as a factor payment by the firm because the firm borrows money for carrying out production and therefore included in national income (ii) Payment of interest by bank to an individual is a factor payment because bank borrows for carrying out banking services and therefore included in national income. (iii) Payment of interest by an individual to bank is not included in national income because the individual borrows for consumption and not for production |
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| 18. |
Distinguish between a spot market and forward market of foreign exchange. |
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Answer» A spot foreign exchange rate is the rate of a foreign exchange contract for immediate delivery (usually within two days). The spot rate represents the price that a buyer expects to pay for foreign currency in another currency. A forward foreign exchange is a contract to purchase or sell a set amount of a foreign currency at a specified price for settlement at a predetermined future date (closed forward) or within a range of dates in the future (open forward). |
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| 19. |
What are fixed and flexible exchange rates? |
| Answer» Fixed exchange rate and flexible exchange rate are two exchange rate systems, differ in the sense that when the exchange rate of the country is attached to the another currency or gold prices, is called fixed exchange rate, whereas if it depends on the supply and demand of money in the market is called flexible | |
| 20. |
When will a balance of trade show a deficit ? |
| Answer» When imports of goods are more than the exports of goods. | |
| 21. |
Indian investors lend abroad. Answer the following questions (a) In which sub-account and on which side of the Balance of Payments Account such lending is recorded ? Give reasons (b) Explain the impact of this lending on market exchane rate |
| Answer» (i) Indians lending abroad is recorded in Capital Account of BOP Account because it leads to creation of foreign exchange assets. It is recorded on the debit side because it outflow of foreign exchange. (ii) Lending abroad increases demand for foreign exchange. Supply of foreign exchange remains unchanged, exchange rate may rise. | |
| 22. |
Indian investors lend abroad. Answer the following questions: In which sub-account and on which side of the Balance of Payments Account such lending is recorded? Give reasons. (b) Explain the impact of this lending on market exchange rate. |
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Answer» Correct Answer - (a) Indians lending abroad is recorded in capital account of Balance of Payments account because it leads to creation of foreign exchange assets. It is recorded on the debit side because it leads to outflow of foreign exchange (b) Lending abroad increases demand for foreign exchange. Supply of foreign exchange remains unchanged, exchange rate may rise. (a) Indians lending abroad is recorded in capital account of Balance of Payments account because it leads to creation of foreign exchange assets. It is recorded on the debit side because it leads to outflow of foreign exchange (b) Lending abroad increases demand for foreign exchange. Supply of foreign exchange remains unchanged, exchange rate may rise. |
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| 23. |
Indian investors lend abroad. Answer the following questions: (a) In which sub-account and on which side of the Balance of Payment Account such lending is recorded? Give reasons. (b) Explain the impact of this lending on market exchange rate. |
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Answer» (i) Indians lending abroad is recorded in Capital Account of BOP Account because it leads to creation of foreign exchange assets. It is recorded on the debit side because it outflow of foreign exchange. (ii) Lending abroad increases demand for foreign exchange. Supply of foreign exchange remains unchanged, exchange rate may rise. |
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| 24. |
Distinguish between autonomous transactions and accommodating transactions in Balance of Payments |
| Answer» The basic difference between the two is that whereas deficit or surplus in BOP occurs due to autonomous items, the accommodating items are taken to cover deficit (or surplus) in autonomous transactions. | |
| 25. |
Explain the meaning of deficit in balance of payments |
| Answer» A balance of payments deficit means the country imports more goods, services and capital than it exports. | |
| 26. |
Balance of Payments of a country is a statement that records:A. Sources of foreign exchangeB. Use of foreign exchangeC. Both (a) and (b)D. None of the above |
| Answer» Correct Answer - C | |
| 27. |
Name two sub-accounts of BOP. |
| Answer» Current account and Capital account. | |
| 28. |
What is meant by fixed exchange rate? |
| Answer» It is the exchange rate which is officially fixed by the government. | |
| 29. |
Define flexible exchange rate. |
| Answer» Exchange rate determined by market forces of demand and supply in the money market is known as flexible exchange rate. | |
| 30. |
Define foreign exchange. |
| Answer» Foreign exchange simply means foreign currency. | |
| 31. |
Which of the following is a stock ?A. WealthB. SavingC. ExportsD. Profits |
| Answer» Correct Answer - A | |
| 32. |
Will the following be included in the domestic product of India? Give reasons for your answer. (a) Profits earned by foreign companies in India (b) Salaries of Indians working in the Russian Embassy in India (c) Profits earned by a branch of State Bank of India in Japan |
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Answer» (a) Yes, it will be included in domestic product because it is a factor income earned within domestic territory of India. (b) No, it will not be included in domestic product because Russian Embassy is not a part of domestic territory of India. (c) No, it will not be included in domestic product as profits are not earned within domestic territory of India. |
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| 33. |
What will be the effect of the followings on the Balance of Payment ? (i) Make in India programme (ii) Import of pulses |
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Answer» (i) Make in India programme will bring foreign capital into India thus increasing supply of foreign exchange. It will improve BOP position (ii) Import of pulses will lead to outflow of foreign exchange from India. It will have adverse effect on BOP |
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| 34. |
National income is the sum of factor incomes accruing toA. NationalsB. Economic territoryC. ResidentsD. both residents and non-residents |
| Answer» Correct Answer - C | |
| 35. |
Explain the medium of exchange function of money. How has it solved the related problem of barter? |
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Answer» The only alternative to using money is to go back to the barter system. However, as a system of exchange the barter system would be highly impracticable today.For example, if the baker who supplied the green-grocer with bread had to take payment in onions and carrots, he may either not like these foodstuff or he may have sufficient stocks of them. The baker would, therefore, have to re-sell the product which would take time and be very inconvenient. By replacing these complicated sales by the use of money it is possible to save a lot of trouble. If the baker accepts payment in money this can be spent in whatever way the baker wishes. The use of money as a medium of exchange overcomes the drawbacks of barter. Thus, money provides the most efficient means of satisfying wants. Each consumer has a different set of wants. Money enables him (her) to decide which wants to satisfy, rank the wants in order of urgency and capacity (income) and act accordingly. This type of system also enables specialisation to extend. Take, for example, a person who performs only a single task in a shoe factory. He has not actually produced anything himself. So what could he exchange if a barter system were in operation? With money system the problem is removed. He can be paid in terms of money and can use that money to buy what he wants. |
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| 36. |
What is the difference between values of exports and imports called? |
| Answer» Correct Answer - Balance of trade. | |
| 37. |
Which of the following is not the function of central bank ?A. Banking facilities to GovernmentB. Banking facilities to publicC. Lendings to GovernmentD. Lendings to Commercial Banks |
| Answer» Correct Answer - B | |
| 38. |
State compnents of the current account of balance of payments account |
| Answer» Trade in goods (visible balance),Trade in services (invisible balance), e.g. insurance and services,Investment incomes, e.g. dividends, interest and migrants remittances from abroad,Net transfers. | |
| 39. |
Distinguish between current account and capital account of balance of payments account. Mention any two transactions of capital account |
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Answer» Current account is the sum-total of the net balance of export and import and the net income & direct transfer. Capital account, on the other hand, is the sum-total of non-financial assets acquired/disposed of, insurance received from foreign insurance companies for catastrophic losses, and debt forgiveness. |
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| 40. |
Capital account includes those transactions whichA. affect assets and liabilities status of a countryB. do not affect assets and liabilities status of a countryC. lead to infow of foreign exchangeD. all of these |
| Answer» Correct Answer - A | |
| 41. |
Differentiate between capital account and current account. |
| Answer» Current Account shows transactions involving | |
| 42. |
Why does demand for foreign exchange rise when its price falls? |
| Answer» The demand for foreign currency fall and supply rises when its price rises because domestic goods become cheaper. It induces the foreign currency to increase their imports from the domestic country. Hence, supply of foreign currency rises. | |
| 43. |
Why does supply of foreign exchange rise when its price rises? |
| Answer» The demand for foreign currency fall and supply rises when its price rises because domestic goods become cheaper. It induces the foreign currency to increase their imports from the domestic country. Hence, supply of foreign currency rises. | |
| 44. |
Unforeseen obsolescence of fixed capital assets during production isA. Consumption of fixed capitalB. Capital lossC. Income lossD. none of these |
| Answer» Correct Answer - B | |
| 45. |
The ratio ottotal deposits that a commercial bank has to keep with Keserve Bank ot India is ca lled: (choose the correct alternative) (a) Statutory liquidity rado (b) Deposit ratio (c) Cash reserve ratio (d) Legal reserve ratio |
| Answer» (c) Cash reserve ratio | |
| 46. |
Will the following factor income be included in domestic factor income of lndia ? Give reasons for your (i) Compensation of employees to the resident of Japan working in Indian embassy in Japan. (ii) Payment of fees to a Chartered Accountant by a firm. (iii) Rent received by an Indian resident from Russian embassy in India. (iv) Compensation given by insurance company to an injured worker. |
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Answer» (i) Yes it will be included as it is part of Factor Income earned in domestic territory of the country. (ii) Payment offered to a Chartered Accountant is an intermediate expenditure for the firm. Hence it is to be deducted from the value of output of the firm to obtain value added. Hence it is not included in domestic factor income of India. (iii) No, as rent received be Indian resident from Russian embassy will be part of Factor Income received from abroad as Russian Embassy is not part of domestic territory of the country. (iv) No, as compensation is given by insurance company to employee and not by employer. |
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| 47. |
Explain the following (i) Why are exports added while calculating GDP through the expenditure approach ? (ii) Why are subsidies added while calculating national income ? (iii) Why are intermediate cost deducted for arriving at GDP through the production approach ? |
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Answer» (i) Exports are added because these are produced within the economic (domestic) territory of the country. GDP is also defined in the same Way. (ii) Subsidies are added because these are paid by government to production unit over and above the price paid by the buyers. As such these add to the factor payments paid by the production units. (iii) Intermediate cost is deducted to avoid double counting of the value of the same product more than once. By doing so we arrived at the value of final products which counts value of a product only once |
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| 48. |
Explain function of money as a unit of account/measure of value. How has it solved related problem of barter? |
| Answer» Under the barter system, it is very difficult to measure the value of goods. For example, a horse may be valued as worth five cows or 100 quintals of wheat, or a Maruti car may be equivalent to 10 two- wheelers. Thus one of the disadvantages of the barter system is that any commodity or service has a series of exchange values.Money is the measuring rod of everything. By acting as a common denominator it permits everything to be priced, that is, valued in terms of money. Thus, people are enabled to compare different prices and thus see the relative values of different goods and services. | |
| 49. |
An economy is in equilibrium. From the following data about an economy calculate autonomous consumption. (a) lncome = 5000 (b) Marginal propensity to save = 0.2 (c) Investment expenditure = 800 |
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Answer» `Y=C+I` `Y=overset(-)C+MPC(Y)+I` `5000=overset(-)C+(1-0.2)(5000)+800` `overset(-)C=5000-8//10xx5000-800` `overset(-)C=5000-4000-800` `=200` |
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| 50. |
What are accomodating transactions ? |
| Answer» Accommodating transactions are compensating capital transactions which are meant to correct the disequilibrium in autonomous items of balance of payments. | |