Balance of Payments (CBSE (Central Board of Secondary Education- Board Exam) Class-12 Economics): Questions 24 - 34 of 44

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Question number: 24

» Balance of Payments » Balance of Payments Account

Appeared in Year: 2012

Short Answer Question▾

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Define stock variable.

Question number: 25

» Balance of Payments » Balance of Payments Account

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List two items of the capital account of balance of payments account.

Question number: 26

» Balance of Payments » Balance of Payments Account

Essay Question▾

Describe in Detail

Distinguish between the current account and the capital account of Balance of Payments. Is import of machinery recorded in current account or capital account? Give reasons for your answer.

Explanation

Current account is part of balance of payment account which shows items of flow nature. Current account includes given items: -

(1) Imports and exports of goods.

(2) Imports and exports of services.

The capital account archives transactions moving foreign assets and foreign liabilities during a year.

So, import of

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Question number: 27

» Balance of Payments » Foreign Exchange Rate

Essay Question▾

Describe in Detail

How is foreign exchange rate determined? Use diagram.

Explanation

Conversion rate of one currency into another. This rate depends on the local demand for foreign currencies and their local supply to country’s trade balance and strength of its economy.

We assume that there are two countries, India and America, the exchange rate of their currencies is to be decided.

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Question number: 28

» Balance of Payments » Foreign Exchange Rate

Essay Question▾

Describe in Detail

What is foreign exchange market? How is foreign exchange rate determined in this market?

Explanation

The foreign exchange market is a global but not centralized market for the trading of currencies. Volume of trading, it is by far the largest market in the world. The main participants in this market are the larger international banks.

In that we assume that there are two countries, India

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Question number: 29

» Balance of Payments » Balance of Payments Account

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State components of the current account of the balance of payments account.

Question number: 30

» Balance of Payments » Foreign Exchange Rate

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Define flexible exchange rate system.

Question number: 31

» Balance of Payments » Foreign Exchange Rate

Essay Question▾

Describe in Detail

Explain two merits each of flexible foreign exchange rate and fixed foreign exchange rate.

Explanation

Flexible exchange rate merits are: -

(i) Eliminates the need to hold huge gold reserves: -

Exchange rate execution eliminates and holds huge gold reserves because this system exchange rate between two currencies is not fix of gold.

(ii) Eliminates the problem of over-valuation and under-valuation of currency: - Exchange

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Question number: 32

» Balance of Payments » Balance of Payments Account

Essay Question▾

Describe in Detail

List the types of transaction that are recorded in the current account of balance of payments account.

Explanation

Current account of balance of payments records the following types of transaction:

  • Export of goods and services.
  • Import of goods and services.
  • Unilateral transfers from one country to other.
  • Net income abroad.
  • Net Current transfers

Question number: 33

» Balance of Payments » Foreign Exchange Rate

Essay Question▾

Describe in Detail

Explain two merits and two demerits of fixed foreign exchange rate.

Explanation

Two merits of fixed foreign exchange rate are given below:

(i) Promotes International Trade: Fixed exchange rate mention a stable exchange rate. Stability prevents uncertainty and promotes international trade.

(ii) Prevents Speculation: Stable exchange rate prevents speculation in foreign exchange market. So, hedging is not required.

Two demerits of fixed

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Question number: 34

» Balance of Payments » Balance of Payments Account

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How will you treat the following while estimating domestic factor income of India? Give reasons for your answer.

(i) Remittances from non-resident Indians to their families in India.

(ii) Rent paid by the embassy of japan in India to a resident Indian.

(iii) Profits earned by branches of foreign bank in India.

Explanation

(I) Remittances from non-resident Indians to their families in India is not added in domestic factor income of India because its remittances from non-resident Indians to their families is unearned income as transfer payments.

(ii) Rent paid by the embassy of japan in India to a resident Indian is not

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