Exchange rates state the value of one currency in terms of other currencies. Which one of the following statements with respect to the exchange rate of currency is correct ?
- A.Floating exchange rates are rates in which the Governments interfere by buying or selling their currencies.
- B.Fixed exchange rates are rates set by Government decisions and maintained by Government actions.
- C.Under the Bretton Woods System, the exchange rates are floated in terms of rise or fall in price of gold.
- D.Under the classical gold standard, the exchange rates are fixed in terms of price of dollar.
Correct answer
Explanation
The correct answer is B. Under a fixed exchange rate, the government or central bank decides the rate and keeps it there by buying and selling currency.
To defend a fixed (pegged) rate, the central bank holds foreign exchange reserves and steps in whenever market demand pushes the currency away from the set value; it can also devalue or revalue by decision. A floating rate, in contrast, is set by demand and supply in the foreign exchange market. India moved from a pegged rate to a market-determined rate in 1993.
A is wrong because under a floating rate the market sets the price; regular government buying and selling describes a fixed or managed rate.
C is wrong because the Bretton Woods System (1944–71) fixed currencies to the US dollar, which was itself fixed to gold at 35 dollars an ounce; rates were not floated.
D is wrong because under the classical gold standard each currency was fixed in terms of gold, not the dollar.
Exam tip: gold standard = currencies fixed to gold; Bretton Woods = fixed to dollar, dollar to gold; since 1973 major currencies float.
Practice Questions
View allIn India, which of the following can be considered as public investment in agriculture?
1. Fixing Minimum Support Price for agricultural produce of all crops
2. Computerization of Primary Agricultural Credit Societies
3. Social Capital development
4. Free electricity supply to farmers
5. Waiver of agricultural loans by the banking system
6. Setting up of cold storage facilities by the governments
Select the correct answer using the code given below :
- A.1, 2 and 5 only
- B.1, 3, 4 and 5 only
- C.2, 3 and 6 only
- D.1, 2, 3, 4, 5 and 6
Show answer
Public investment means government spending that creates lasting assets or capacity, while support prices, free power and loan waivers are subsidies or transfers.
Read the full explanation →Consider the following activities :
I. Production of crude oil
II. Refining, storage and distribution of petroleum
III. Marketing and sale of petroleum products
IV. Production of natural gas
How many of the above activities are regulated by the Petroleum and Natural Gas Regulatory Board in our country?
- A.Only one
- B.Only two
- C.Only three
- D.All the four
Show answer
The Petroleum and Natural Gas Regulatory Board covers the downstream chain, refining to sale, but not the production of crude oil and natural gas.
Read the full explanation →Which one of the following equals Personal Disposable Income ?
- A.Personal Income - Direct taxes paid by households and miscellaneous fees, fines, etc.
- B.Private Income - Saving of Private Corporate Sectors - Corporation Tax
- C.Private Income - Taxes
- D.Total expenditure of Households - Income Tax - Gifts received
Show answer
In national income accounting the steps run from private income to personal income to personal disposable income. Private income is the factor income of the private sector plus transfers.
Read the full explanation →With reference to India, consider the following pairs:
Organization : Union Ministry
I. The National Automotive Board : Ministry of Commerce and Industry
II. The Coir Board : Ministry of Heavy Industries
III. The National Centre for Trade Information : Ministry of Micro, Small and Medium Enterprises
How many of the above pairs are correctly matched?
- A.Only one
- B.Only two
- C.All the three
- D.None
Show answer
Each organisation is paired with the wrong ministry. The National Automotive Board works under the Ministry of Heavy Industries; it supports the automobile sector with testing and certification work and helps run schemes for the industry.
Read the full explanation →If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below:
- A.1 and 2 only
- B.2 only
- C.1 and 3 only
- D.1, 2 and 3
Show answer
An expansionist policy aims to make money cheaper and more plentiful, so the RBI would not raise the Marginal Standing Facility rate, which makes borrowing dearer.
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