Solution: (d)
Devaluation makes import expensive and discourages it, while the export of a country that devalues becomes cheaper and thereby induces trade partners to import more goods from her. Nations that produce industrial goods on a large scale stand to benefit from devaluation.
The outcome of ‘the devaluation of currency is
(a) increased export and improvement in the balance of payment
(b) increased export and foreign reserve deficiency
(c) increased import and improvement in the balance of payment
(d) increased export and import
Solution: (a)
Devaluation is a reduction in the exchange value of a country’s monetary unit in terms of gold, silver, or foreign currency. By decreasing the price of the home country’s exports abroad and increasing the price of imports in the home country, devaluation encourages the home country’s export sales and discourages expenditures on imports, thus improving its balance of payments.
How will a reduction in Bank Rate affect the availability of credit?
(a) Credit will increase
(b) Credit will not increase
(c) Credit will decrease
(d) None of these
Solution: (a)
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances to a commercial bank. Whenever the banks have any shortage of funds they can borrow it from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks against securities. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity crunch in the market.
Bank deposits that can be withdrawn without notice are called
(a) account payee deposits
(b) fixed deposits
(c) variable deposits
(d) demand deposits
Solution: (d)
Demand deposits are funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. Demand deposits can be “demanded by an account holder at any time. Many checking and savings accounts today are demand deposits and are accessible by the account holder through a variety of banking options, including teller, ATM and online banking. In contrast, a term deposit is a type of account which cannot be accessed for a predetermined period (typically the loan’s term).
Foreign currency which has a tendency of quick migration is called
(a) Scarce currency
(b) Soft currency
(c) Gold currency
(d) Hot currency
Solution: (d)
Hot money or currency is a term that is most commonly used in financial markets to refer to the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called “hot money” because they can move very quickly in and out of markets, potentially leading to market instability.
