Balance of Payments [IEcoS (Economic Services) Economics Paper-2]: Questions 1 - 5 of 5

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Question number: 1

» Balance of Payments » Exchange Rates

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Essay Question▾

Describe in Detail

Describe the merits of flexible exchange rate system.

Explanation

  • A floating exchange rate (also called a fluctuating or flexible exchange rate) is a type of exchange rate regime in which a currency’s value is allowed to fluctuate in response to foreign exchange market mechanisms.
  • Under a truly flexible exchange rate system, a deficit or surplus in the nation’s balance of payments is automatically corrected by a d

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Question number: 2

» Balance of Payments » Mechanism of Adjustments

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Appeared in Year: 2018

Essay Question▾

Describe in Detail

With respect to devaluation, explain the J curve effect.

Explanation

Devaluation leads to worsening of the balance of trade and payments initially but subsequently it may result in the improvement in the balance of trade and payments’

The J-curve depicts the worsening of balance of payments deficit in the short run and improvement of it in the long run due to devaluation. The J-curve has been shown in the figure belo

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Question number: 3

» Balance of Payments » Exchange Rates

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Appeared in Year: 2017

Essay Question▾

Describe in Detail

Describe the merits of flexible exchange rate system.

Explanation

The system of flexible exchange rates operates in an easy, quick, and efficient manner in clearing the foreign exchange market.

  • It ensures an automatic adjustment between the forces of demand and supply.

  • There are smooth and continuous adjustments in the foreign exchange market through appropriate changes in the rates of exchange.

  • The automatic exchan

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Question number: 4

» Balance of Payments » Exchange Rates

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Appeared in Year: 2010

Essay Question▾

Describe in Detail

Distinguish between Hot money and Capital flight.

Explanation

Capital flight is the uncertain and rapid flowing of large sums of money out of a country.

  • Capital flight may be legal, as in the case of foreign investors who send back their profits to their home country, or it may be illegal as in the case of those economies where the transfer of assets out of a country cannot take place.

  • Capital flight can impose

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Question number: 5

» Balance of Payments » Disequilibrium in Balance of Payments

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Appeared in Year: 2016

Essay Question▾

Describe in Detail

Distinguish between autonomous and accommodating transactions. What role do the accommodating transactions play in the balance of payments?

Explanation

  • Autonomous transactions are those which occur in the current and capital accounts for business or profit motive independently of the BOP considerations.

    • All the transactions such as visible and invisible exports and imports, unilateral transfer receipts do affect country’s balance of payments but these are, in no way, caused by the consideration of

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