NCERT Class 12 Economics-II Class 12 Chapter 6 Questions And Answers Open Economy: Micro Economics Easy pdf

WhatsApp Group (Join Now) Join Now
Telegram Group (Join Now) Join Now

NCERT Class 12 Economics-II Class 12 Chapter 6 Questions And Answers Open Economy: Micro Economics, NCERT Class 12 Economics Chapter 6 Question Answers & Notes


Open Economy: Micro Economics


Capital Account: It deals with financial transactions. It includes all types of short term and long term capital transfers. Current Account: Current account of balance of payments deals with short term transactions (receipts and payments).it shows. It includes both visible and invisible men.

Trade Balance: The difference between the export value of goods and the value of goods trade balanceis called Economic Transactions Transactions of value are called Economic Transactions. It is a process in which: ownership of economic goods changes and residents of one country provide economic services to residents of another country.

Fixed Exchange Market Under the fixed exchange rate, the exchange rate is determined by the government. The exchange rate usually remains stable. Even if there is any change in it, the rate is within the prescribed limits. Devaluation: Foreign currencies are bought and sold in this market.

Visible trade: Export and import of goods is called visible trade. Trade Balance: Trade balance is the difference between visible exports and visible imports. Balance of Payments is an account in which all the remittances from one country to other countries areEconomic transactions are mentioned. Receipts of a country from other countries of the worldAnd shows the payments made to other countries.

Components of Balance of Payments: (a) Current Account and (b) Capital Account.Other items in the balance of payments include (a) defaults and (b) government reserve transactions.

Items on the current account of the balance of payments: (a) Import and export of visible goods.

(b) Import of invisible items andexports, (c) travelers’ expenses, (e) investment income,(d) services of experts, (f) government transactions,(g) Donations and Gifts(h) Fees and royalty etc.

Adverse balance of payments When a country has to lend gold or take short term loans to balance its payments, this situation is called adverse balance of payments.

Imbalance in the Balance of Payments: This imbalance can be saving as well as deficit. Types of Foreign Exchange Rate (a) Fixed Foreign Exchange Rate and (b) Flexible Foreign Exchange Rate.

Demand for foreign exchange: Foreign exchange is demanded for various purposes. The quantity of imports, foreign debt, foreign aid, investment abroad etc. foreign exchange demand and relation is opposite to its price. • Determination of the foreign equity rate Determination of the exchange rate of the foreign equity at that point occurs where the demand for foreign exchange is equal to the supply.


NCERT Class 12 Economics-II Class 12 Chapter 6 Questions And Answers

Class12th 
Chapter NameGovernment: Functions and Areas
Chapter numberChapter 6
Part B
BoardCBSE
Book NCERT
SubjectEconomics
Medium English
Study MaterialsQuestion Answers & Notes
Download PDFNcert class 12 economics-II chapter 6 pdf
NCERT Class 12 Economics-II Class 12 Chapter 6 Questions And Answers Open

VERY SHORT ANSWER TYPE QUESTIONS


1. What is the change in foreign exchange rates called?

Ans. Changes in foreign exchange rates are called spot devaluation or devaluation.

2. Write the definition of fixed exchange rate.

 Ans. Fixed exchange rate refers to the exchange rate which is fixed at a fixed level.Lives It does not change when there is a change in the demand and supply of the commodity.

 3. Whether the balance of payments deficit or surplus is adjusted against the fixed exchange rateMay go ? 

Ans. Fixed exchange rate balance of payments deficit or surplus cannot be adjusted.

4. Write the meaning of managed floating exchange rate.

Ans. Managed floating exchange rate Fixed exchange rate and floating exchange rateThere is a mixture. In this system, the central bank of each economy marginally changes the exchange rate.Can intervene in buying and selling of foreign currency by conversion.

 5. Name the countries which adopted flexible exchange rate.

Ans. Switzerland and Japan introduced flexible exchange rates in the early 1970s.was adopted.

6. Write the sources of demand for household goods in a closed economy.

Ans. Sources of demand for household goods (1) Consumption, (ii) Government consumption, (iii) Domesticinvestment |

7. Write the sources of demand for household goods in an open economy.

Ans. Sources of demand for domestic goods- (i) consumption, (ii) government expenditure, (iii) domestic investment,(iv) Net exports.

9. How are modern economies?

Ans. Modern economies are open economies.

10. What is an open economy?

Ans. An open economy is an economy that has economic relations with other economies.

11. What is the measure of openness of the economy? 

Ans. Total foreign trade (ratio of imports and exports to GDP)measures the openness of the economy.

12. What was India’s foreign trade in 2004-05?

Ans. India’s foreign trade was 38.9 percent of GDP in 2004-05.In this, 17.1 percent was import and 11.8 percent was export.

13. What was India’s foreign trade in the year 1985-86?

Ans. India’s foreign trade was 16 per cent of the GDP in 1985-86.

14. When do foreign economic agents accept the national currency?

Ans. Foreign economic agents accept the national currency when they have confidence that the purchasing power of the currency will be stable.

15. What work does the government do to win the confidence of people who use currency in large quantities?

Ans. The government has to declare that the currency will be converted into other assets at fixed prices.

16. What is entered in the running balance of payments?

Ans. Export-import and transfer payments of goods and services are recorded in the current account.

17. What is entered in the capital account of balance of payments?

Ans. Purchase and sale of currency, stocks, bonds etc. with foreign countries are recorded in the capital account of the balance of payments.

18. What is the essence of international payments?

Ans. The essence of international payments is that the excess expenditure will be done through foreign loans etc.

19. Write the financial source of current account deficit.

Ans. The current account deficit is financed through net capital inflows.

20. Write the period in which India had a trade deficit.

Ans. For the rest of the 24 years, India’s trade was deficit.

21. Write the period in which India’s trade balance decreased from deficit to surplus.

Ans. In the period from 2001-02 to 2003-04, India had a current account deficit surplus.

22. What should not be done to meet the large deficit in the current account?

Ans. Non-compensation of current account deficit with invisible surplus.

23. Write the meaning of overall deficit (surplus) of balance of payments.

Ans. The decrease (increase) in the official reserve fund is called balance of payments time P (surplus).

24. What is the original promise of balance of payment?

Ans. The basic premise of the balance of payments is that the monetary authority is responsible for meeting any deficit in the balance of payments.

25. When is an economy said to be in a state of equilibrium?

Ans. An economy is said to be in balance with respect to the balance of payments when the sum of the non-reserved items of its current account and capital account is zero.

26. Write the method of balancing the current account of the balance of payments.

Ans. Balancing current account with international borrowings without changing reservesis done.

27. Which items are called above the line?

Ans. Autonomous items are said to be above the line.

28. Write the meaning of autonomous items.

Ans. Exchanges (transactions) that are independent of the balance of payments situation are autonomous.are called

29. Which items are called below the line?

Ans. The adjustment mares are called below the line.

30. In which category are official transactions kept?

Ans. Official transactions are placed in the adjustment or below line items.

31. Write the definition of foreign exchange market.

Ans. the international market in which the currencies of different countries are exchangedis called the foreign exchange market.

32. Name the main participants of foreign exchange market.

Ans. The main participants of foreign exchange market are- (i) commercial banks, (ii) foreignexchange agents, (iii) more dealers and (iv) monetary authority.

33. Write the definition of exchange rate. 

Ans. The value of one currency in relation to another is called the exchange rate.

34. Write the definition of real exchange rate.

Ans. The ratio of the foreign price to the domestic price measured in a currency is called the real exchange rate.Real exchange rate =ePeP where c is nominal/monetary exchange rate, P is the foreign price and P is the domestic price

35. Write the definition of flexible exchange rate. 

Ans. exchange rate which is determined by the forces of demand for and supply of foreign currencyis called a flexible exchange rate


short answer type questions


1. Discuss the broad border strip system. 

Ans. In wide range system, the government of the country announces the exchange rate of its currency. But in this system, 10 percent fluctuations on both sides of the declared exchange rate should be accepted. With this, the member countries can easily adjust their balance of payments.

For example, if a country has a balance of payment deficit, then to get rid of this problem, that country should be allowed to reduce its currency by 10 percent. When the rate of currency decreases, the goods and services of that country become cheaper for other countries, due to which the goods of that country also increase in foreign countries and that country receives more foreign exchange than before.

2. Explain the concept of managed flexibility.

Ans. Managed liquidity is a system of fixed and timed exchange rates. The exchange rate is kept free in the system. Serves as the monetary officer of the country. Monetary officers can intervene under officially made rules and formulas. The authorities do not fix the exchange rate.

No limit is fixed for the movement of the exchange rate. When the need for intervention is felt, the authorities can take appropriate steps for coordination. In the absence of rules and guides, this system becomes a dirty fluidity.

3. Write three criticisms of purchasing power parity theory.

Ans. (i) This theory believes that the exchange rate is affected only by the import-export of goods. While price indices are uncertain and unreliable.

 (ii) Neglect of invisible items This theory believes that the exchange rate is affected only by import-export of goods. Services do not affect whereas in practice this is not true.

(III) Ignoring overhead costs: In this theory, transportation expenses have been ignored. While transportation expenses can reduce the price of goods in a country.

4. Why do people demand foreign exchange?

Ans. People demand foreign exchange for the following purposes:

(i) To buy goods and services from other countries.

 (ii) To send gifts abroad.

(iii) To purchase physical and financial assets in another country.

(iv) for speculative purposes with respect to the value of foreign currencies.

(v) For tourism in foreign countries.

(vi) for the purpose of availing health and education services in foreign countries, etc.

5. Explain the capital account of the balance of payments structure. 

Ans. The transactions of long-term capital are shown in capital accounts. Private and government capital transactions, banking capital flow and other financial exchanges are shown in this account. Items of Capital Account The main items of this account are as follows-

(i) Exchange of government capital, apart from the transactions of loans taken by the government from abroad and loans given to foreign countries, payment of loans and conditions of loans, foreign exchange reserves, gold reserves of the central bank, transactions of the World Monetary Fund. -depicted giving etc.

goes. (H) Banking capital: Foreign liabilities and liabilities of commercial banks and co-operative banks are shown in the banking capital flow. It does not include capital inflows from the central bank.

(iii) Private debt This includes foreign investment in long-term private capital, loans, foreign deposits, etc. Import and export of direct capital goods are included in foreign direct investment.

6. Explain the role of cap system in foreign exchange market.

Ans. A movable boundary barrier system is a system between fixed and flexible systems. In this system, after announcing the exchange rate, the government of a country can change it by 1 percent on either side, that is, it can also increase the exchange rate by 1 percent andCan also be found.

But due to the review of the country’s exchange reserves, amendments are made in the fixed exchange rate from time to time. Fluctuations in money supply and prices are also taken into account while making revisions. In this system, the upper and lower limits of the exchange rate are fixed. The monetary authority of the country can maintain financial discipline through the ceiling and minimum limits.

7. Explain the difference between current account and capital account.

Current accountcapital account
(i) The current account of the balance of payments includes exports and imports of goods and services.The capital accounts of the balance of payments show transactions involving foreign loans, payments and receipts of loans, banking capital flows, etc.
(ii) The current account balance of the balance of payments has a direct bearing on the income of a country. If the current account balance of a country is in favor of that country, then the national income of that country increases.The balance of payments does not have a direct impact on the national income of the country, it only shows the amount of assets.

8. Foreign Exchange

What are (i) spot market, and (ii) futures market?

Ans. (i) Spot Market In the foreign exchange market, if transactions take place on a daily basis, then such market is called spot market or current market. forex in this marketThe exchange takes place at spot rates.

(ii) Forward market If the transaction takes place in the foreign exchange market on the basis of future liability, then it is called forward market. In this market, transactions take place on the completion of a certain date in the future.

11. Write the meaning of net exports in an economy.

Ans. Net exports are the difference between the exports of a country to the rest of the world and the imports of the economy from the rest of the world during an accounting year. When the value of exports is greater than the value of imports,

the value of net exports is When the value of exports is less than the value of imports, the value of net exports is negative, when the value of exports is equal to the value of imports, then net exports are zero. trade at net export valueThe rest depends. This can be expressed in the following way-

(i) Export Import = Positive Net Export = Trade Balance (ii) Export Import = Negative Net Export Trade Balance Deficit – = (iii) Export – Import = Zero Export = Balanced Trade Balance

12. State the determinants of import demand in an economy.

Ans. Determining factors of demand for import goods in an economy- (i) Domestic income and (ii) Exchange rate Higher the level of domestic income, higher is the demand for imports.Thus, there is a direct relationship between domestic income and import demand.

There is an inverse relationship between the exchange rate and imports. High exchange rate makes imported goods costlier. Therefore, at a higher exchange rate, the quantity of goods imported decreases.

13. Write the determining factors for the demand for exports. 

Ans. The demand for export goods depends on the following factors-

(i) Foreign income: There is a direct relationship between the demand for exported goods and foreign income, the higher the foreign income, the higher the demand for exported goods.

(ii) Exchange rate: There is an inverse relationship between the real exchange rate and export demand. Exporter goods become comparatively cheaper at a higher exchange rate. That is, the demand for exports will be more at a higher exchange rate.

15. An increase in imports would lead to an additional leakage in the circular flow of domestic income. explain . 

Ans. Part of induced consumption transferred to the demand for foreign goods- goes. The value of increase in MPC is positive or greater than zero. so household items

The induced effect of demand and household income will reduce. That is why an additional increase in imports causes an additional boat in the circular flow of real income. At each stage of the multiplier process, more household income is secreted. The expenditure multiplier decreases.

16. Explain the effect of demand for goods for export on the autonomous expenditure multiplier.

Ans. The demand for goods for export increases the aggregate long of goods for the domestic economy. In a closed economy, the demand for domestic goods increases due to increase in consumption, government expenditure and investment.
In an open economy, the demand for goods for export gives rise to additional injections at each stage of the multiplier process, hence increasing the autonomous multiplier. It is calculated by the following formula-

17. Explain the difference between current account and capital account.

Years.

Current accountcapital account
(i) The current account of the balance of payments includes exports and imports of goods and services.The capital accounts of the balance of payments show transactions involving foreign loans, payments and receipts of loans, banking capital flows, etc.
(ii) The current account balance of the balance of payments has a direct bearing on the income of a country. If the current account balance of a country is in favor of that country, then the national income of that country increases.The balance of payments does not have a direct impact on the national income of the country, it only shows the amount of assets.

18. How does one economy interact with other economies?Broadens the selection?

Ans. Transactions of one economy with other economies broaden the choice in three ways- (i) More opportunities for consumers and producers to choose between domestic and foreign goodsis received. This widens the size of the commodity market.

(ii) More opportunities for investors to invest in domestic and foreign capital marketsare obtained. Due to this, many capital markets join together and give birth to a large capital market.

(iii) The firm can choose the best position to produce. There is more opportunity to choose the best option for reducing the means of production especially labor.

19. How is the aggregate demand of the economy affected by foreign trade?

Ans. Foreign trade affects aggregate demand in an economy in two ways-

(i) When residents of a country buy goods from abroad, there is leakage from the circular flow of domestic income. This leads to a fall in the level of income in that economy and a decrease in the level of aggregate demand in the economy.

(ii) When residents of a country sell producer goods abroad, it injects into the circular flow of income, i.e. increases income. The level of aggregate demand increases due to exports.

20. In the absence of confidence in stable purchasing power, a currency does not act as a medium of exchange or unit of account in the international market. make a comment.

Ans. When the flow of goods takes place in the international boundaries, then the flow of money is in the opposite direction to the flow of goods, at the international level there is no exchange with currency alone. Therefore, foreign economic agents do not accept any currency whose purchasing power is not stable.

Therefore, the government assures the whole world to take responsibility for the stability of the purchasing power of the currency. Therefore, in the absence of the confidence of permanent purchasing power, no one can become a medium of exchange or a unit of account at the international level.

21. State the statements affecting the creditworthiness of a currency.

Ans. The credibility of a currency is affected by the statements in the following ways-

(i) The property of unlimited free convertibility. The higher the convertibility of the currency and the higher the claim of price stability, the higher is the credibility of that currency. On the contrary, the lower the convertibility of the currency and the weaker the claim of price stability, the weaker the credibility of the currency.

(ii) International monetary institution (system) which assures stability in international transactions.

22. Write the relation between speculative motive and exchange rate.

Ans. Exchange rates in the international currency market depend on the forces of demand and supply of goods for export and import, as well as on the demand for currency for speculative purposes.

The demand for currency in the international money market depends on the potential gain from the devaluation of the currency.

The higher the profit potential from currency devaluation. The higher the quantity of currency demanded, the higher the exchange rate. On the contrary, in case of loss due to devaluation of currency, the demand for currency is reduced and exchangeThe rate is found to be low,

 23. Write the relation between interest rate and exchange rate.

Ans. The role of interest rate is important in determining the exchange rate in the short term. The exchange rate is the difference between the prevailing interest rates. Funds of banks, multinational companies, and individuals travel all over the world in search of higher interest rates. In countries where the interest rate is low,

\the demand curve for their currency shifts to the left and the supply curve to the right. ItsOn the contrary, in countries where the interest rate is found high, the demand curve of their currency shifts to the right and the supply curve shifts to the left, there currency is devalued.

24. Write the relation between income and exchange rate.

Ans. When household income increases, consumer spending increases. With the increase in the demand for goods to the domestic economy, the demand for emergency goods or foreign goods also increases. That is, the expenditure on the purchase of foreign goods increases.

foreign objectsWith an increase in the demand for foreign exchange, the demand curve for foreign exchange shifts to the right and domesticCurrency gets devalued.

On the contrary, if the income of foreign economies increases, then the demand curve for the goods of the domestic economy will shift to the right in the international market, due to which the domestic currency will be devalued.

Other things being equal, the country in which the demand for goods increases rapidly, that countryThe currency gets devalued because the value of exports in such a country is more than the value of imports. In this country the demand curve for foreign exchange shifts more to the right than the supply curve.

25. Explain the Fixed Exchange Rate System.

Ans. The fixed exchange rate is decided by the government. The central bank of the economy determines this exchange rate. Normally no change is made in the fixed exchange rate. The central bank can make changes within certain limits to keep the exchange rate stable in the foreign exchange market.

The central bank establishes a fund of foreign currencies, it is used to stabilize the exchange rate.is done to maintain. The fixed exchange rate depends on the amount of gold in the country’s standard currency. In other words, the determination of the fixed exchange rate depends on the currency’s value to gold declared by the government.

Suppose the government of India fixed the price of 1 gram of gold for one rupee and the government of England fixed the price of 10 grams of gold for one pound, then the exchange rate of gold would be Rs 10 and the exchange rate of rupee would be 11110 gold. After 1977, the circulation of this exchange rate was ended by the members of the International Monetary Fund.Is done.

26. Explain flexible exchange rate.

Ans. The exchange rate which is fixed on the basis of balance of demand and supply of currency in the foreign exchange market is called flexible exchange rate. Flexible exchange rate depends on the demand or supply of currency in the foreign market or bothChanges when there is change. There are two types of flexible exchange rate-

(i) Freely flexible (ii) Managed flexible Freely flexible exchange rate is completely determined on the basis of the demand and supply forces of currency, the central bank does not interfere in its determination while the managed flexible exchange rate is controlled by the central bank. The bank buys and sells foreign currencies.

27. Differentiate between fixed and flexible exchange rates. 

Ans. Fixed exchange rate Under the fixed exchange rate system, the government of a country announces its exchange rate. If the rate is kept constant. Even minor changes in this rate are not tolerable in the economy.

Flexible exchange rate If the rate of exchange is decided by the balance of supply and demand in the market, then it is called flexible exchange rate. flexible exchange ratelives.

28. Explain the demand for foreign exchange. How does it affect the exchange rate?

Ans. The amount of foreign exchange required by a country to settle all its foreign liabilities during an accounting year is called demand for foreign exchange. A country demands foreign exchange for the following purposes-

(i) All visible and invisible items are included to pay for imports.

(ii) To pay off foreign short-term loans.

(iii) To invest in the rest of the world.

(iv) To give gifts or financial assistance to foreign countries.

There is an inverse relationship between the demand for foreign exchange and the exchange rate. When the exchange rate is high, the demand for foreign currency decreases.

29. Foreign exchange market Indian rupees spent abroad by Indian citizenssupply is the same. explain । 

Ans. If the people of India order goods and services from abroad, then the people of India have money to pay. But foreign sellers accept the value of their goods and services in the currency of their country.

So the people of India get foreign exchange from the Indian currency rupee. Like foreign exchange, people of India supply rupees to the foreign exchange market. In this way the people of India supply rupees to the foreign exchange market. Thus the people of India supply Indian rupees to the foreign exchange market every year. Suppose an Indian tourist falls ill in America and receives the services of a doctor.

The doctor’s fee is $20. Tourists from India will have to pay the fees in dollars. He will pay in rupees to get dollars. If a dollar is worth Rs 40, he will pay Rs 800 to the forex market to get $20. Hence Rs 800 is supplied to the foreign exchange market.

30. Explain the supply of foreign exchange.

Ans. The amount of currency received by a country in exchange of all the services in the period of one accounting year is called supply of foreign exchange. The following factors affect the supply of foreign exchange:

(i) All items, visible and invisible, are included in the export.

(ii) investment in that country by foreign countries.

(iii) Transfer payments received from abroad. There is a direct relationship between the rate and supply of foreign exchange. There is more supply of foreign currency at a higher exchange rate.

31. Explain the relationship between balance of payments and national income accounts. 

Ans. Internationally, there is a need to receive and receive payments in two ways. One, production and sales and two, buying and selling of financial and real assets.In an open economy, total expenditure on the production of goods and services includes private sub-government final consumption, investment and expenditure on imports from abroad.goes .

33. Explain the difference between balance of trade and balance of payments.

Years.

trade balancepayment is due
(i) Balance of trade is a narrow concept of foreign exchange.Balance of payments is a broad concept of foreign exchange.
(i) It covers only visible items of export and import.The balance of payments includes all types of items, visible and invisible.
(ii) Balance of trade balanced and unbalanced balance of payments can always be in balance.Balance of payments can always be in balance
(iv) The balance of trade does not give complete information for foreign economic analysis.Balance of payments provides sufficient information for economic analysis of foreign liabilities and liabilities.

34. Write the relation of exchange in short run and long run.

Ans. The longer the time period, the more trade restrictions such as tariffs, fees, exchange rates, etc., get adjusted. The price of a product measured in different currencies should be the same but the level of the transaction may be different. Therefore, over a long period of time, the exchange rate between two countries adjusts based on price levels in the two countries. Thus the rate of exchange in countries is determined on the basis of difference in prices in two countries.

35. Explain the components of these accounts- (i) Current account. (ii) Capital Account.

Ans. (i) Current Account: The components of current account are as follows-

(i) Import-export of goods (ii) Import-export of services

(iii) receipt and expenditure of unilateral transfers. Export of goods and services and receipt of transfer payments from abroadand is shown on the ‘debit’ of expenditure on import of goods and services and on transfer payments.

(ii) Capital Account In this account transactions of capital assets and liabilities are shown. The components of this account are as follows-

(i) private transaction, (iii) direct investment,

(ii) Government transactions (iv) Correspondence inputs.

The purchase of assets abroad by a country is shown as a debit to the capital account of that country and the sale of assets by the country abroad is shown as a credit.

36. Write the importance of balance of payment accounts. 

Ans. The balance of payments accounts have the following importance- (i) Balance of payments accounts are all the liabilities of a country from abroad andProvide details of liabilities to the investors so that any exchange going in the wrong direction can be stopped.

(ii) Information about the weaknesses of economic transactions at the international level from these accountsis obtained.

(iii) On the basis of these accounts a country can formulate its economic policy.

(iv) Information about profit and loss in international trade is also obtained.

37. Comment on the ‘current account’ included in the structure of balance of payments.

Ans. The short-term real transactions are reflected in the current account of the balance of payments.Items of Current Account – According to the International Monetary Fund, the following items are shown in the current account – (i) Visible items – This includes the services exported and imported by a country. As-

(ii) Invisible items – This includes the services exported and imported by a country. Like- (a) Exchange of services by individuals (export and import of services)

(b) Services of business enterprises (i) Insurance and banking, (ii) Transport services, (iii) Government

transactions, (iv) investment/capital income, (v) transfer payments, (vi) services of experts etc. Payment of Current Account Balance Exports (visible + invisible items) Imports (visible + invisible).

38. What is correspondence investment? Why is the purchase of an asset marked with a negative sign in the capital account of the purchasing country?

Ans. Correspondence to the purchase of foreign shares and debentures by a countrycalled investment. With this type of investment, the buyer does not have control over the asset.

Traditionally, if a country purchases an asset from another country, it is shown with a negative sign in the capital account of the buyer country because in this transaction foreign exchange flows out of the country. If the flow of foreign exchange is towards another country, it is given a negative sign. On the contrary, if the flow of foreign exchange is from another country to that country, then it is shown with a positive sign.

39. Explain the special drawing rights system.

Ans. Under the special drawing rights arrangement, a country can get the necessary foreign currencies from the International Monetary Fund within a fixed limit in lieu of its currency. Changes in a country’s Funds of Funds result from all other components of that country’s balance of payments account. The shortage of these funds fulfills the need to spend abroad.

By creating deficits, foreign exchange flows to that country and hence finds an entry on the credit side of the balance of payments account. If there is an increase in the fund, then the flow of foreign exchange towards the country is less, so it is shown towards the debit side.

 40. Payment of conversion of foreign reserves by the Central Bank of a countryHow does it affect the account balance?

Ans. If the central bank of a country increases or decreases the reserves, it is calledChange in official foreign assets is called.

If the central bank of a country increases the reserve of foreign exchange, then there will be an entry on the positive side (deposit side) of the balance of payments account of the other country because the flow of foreign currency to the other country will increase or that country will receive foreign exchange.


long answer type questions


1, What is meant by disequilibrium in the balance of payments? How many types is it?

Ans. Proper balance of payments always remains in balance. Balance of payments means the difference between all the liabilities of a country and all its liabilities towards foreign countries.

In the Balance Sheet, all the liabilities and liabilities are shown equally. To understand the balance of payments imbalance, one has to know the accounts included in the balance of payments (i) Balance of sand account : Balance of Chale account = Export (visible invisible) – ( visible Invisible)

(ii) Capital Account Balance of Capital Account = Gold Exchange + Long Term Loansexchange of short term loans

There is overall balance in both the above accounts. But it is not necessary to always have a balance in the current account. When there is an imbalance in the current account of a country, it is met from the capital account. To accomplish this, a country can convert into reserve gold reserves and foreign reserve currency reserves. For example, to meet the deficit in the balance of payments, it can reduce its above reserves.

To meet the balance of payment deficit, a country can also take short term and long term loans from abroad. But the above measures are not always appropriate to meet the deficit of balance of payments.

In order to know the real balance of payments, the items used for the balance should be kept separately, such as reduction in gold reserves and foreign exchange reserves, short-term or long-term debt from abroad. If after removing these men the balance of payment of a country is in balance, then it will be considered as real balance, otherwise the balance of payment will actually be considered in imbalance. There can be three situations of imbalance-

(1) balanced balance of payments exports imports

(2) balance of payment of savings exports imports

(3) Deficit Balance of Payment-Export Import

3. Explain the importance of balance of payments for an economy.

Ans. From the economic point of view, balance of payments is of great importance for a country. ThisThis is confirmed by the following facts-

(i) The balance of payments indicator of economic condition reveals many aspects of the state of the economy. In countries where there is a balance of payment situation, it is considered correct.

Whereas the economy is not considered healthy in a situation of adverse balance of payments.

(ii) Indicator of Foreign Dependence Balance of payments shows the extent to which a country is dependent on foreign countries. The greater the adverse balance of payments of a countryIt happens that its dependence on other countries is as much.

(iii) Knowledge of receipts and payments from the rest of the world The knowledge of the total payments and receipts made to the rest of the world enters the balance of payments account.

(iv) From the study of the balance of payment indicator of the status of international trade, the countryThere is knowledge of the state of foreign trade.

(v) Determination of economic policies plays an important role in the country by studying the balance of payments nationally. Many a times important changes are made in the economic policies of the country on the basis of the balance of payments situation.

(vi) Knowledge of foreign investment: The balance of payments shows that how much income has been received by the foreigners from the investment made in a country and similarly what is the profit being made by the investment made by a country abroad.

(vii) Indicators for International Financial Institutions: International financial institutions like World Bank, International Monetary Fund etc. decide the amount of aid for a country on the basis of the balance of payments situation.

(viii) With the help of balance of payments accounts, we can know what is the impact of transactions with the world on the country’s economy and how it affects them.

4. Show the details of various items included in the current and capital accounts of the balance of payments.

 Ans. Current Account- Following are the components of current account-

(i) Import and export of goods

(ii) Import export of services

(iii) Receipt and expenditure of one-way transfer payments Export of goods and services The receipt of transfer payments from abroad is debited and the expenditure on import of goods and services and transfer payments is debited. The items of current account can be shown in the table as follows-Current account items

credit

(i) Export of goods (visible)

(i) Invisible items

(a) Services provided to the rest of the world (education, health, travel, insurance, transport, banking etc.)

(b) transfer payments from the rest of the world

(c) Income received / earned from rest of the world

5. Spot market and futures market functioning of foreign exchange marketDiscuss

Ans. The method of transactions in the analysis of the foreign exchange market is by time period. On the basis of time period of transaction it can be divided into two parts

(i) Spot market This market is also called current market. Transactions in this market are done on a daily basis. The average relative strength of a country’s currency is called the effective exchange rate. Effects of price changes are not reflected in the effective exchange rate. Hence it is also called monetary effective exchange rate.

The correction or decline on the world exchange is estimated on the basis of the real exchange rate. Only current account transactions balance. The basis of this is that by applying the same price assessment, the prices in all countries become the same. relative purchasing power rateThe price increase rate is linked to the world exchange rate.

(ii) Forward Market: Transactions in this market take place on the basis of future liability. In this market, transactions that are to be completed at some date in the future are processed. Most transactions in trade are not completed on the same day the documents of the transaction are signed by the two countries.

The transaction takes place several days after that, so the possible exchange rate prevailing in the market is also taken into consideration. This gives the member countries an opportunity to hedge the risks arising out of the agreed exchange rate. The futures market consists of trading participants who will either need or supply the currency at some future date. There are two objectives in trading in futures

 6. Explain the factors affecting exchange rate.

Ans. Following are the factors affecting the exchange rate-

(i) Capital Flow: Variation in inflow and outflow of capital affects the demand and supply of foreign exchange. Foreign exchange rate changes. For example, if capital is flowing from America to India for investment, then the demand for the Indian rupee will increase in the foreign exchange market. Hence the value of Indian Rupee will increase in US Dollar.

If the Government of India takes a loan from America, then in such a situation the value of dollar will increase and the value of Indian rupee in dollar will increase. On the contrary suppose that India pays off the loan to America then the dollar will appreciate in the rupee. of itsThat is, there will be an increase in the demand for US dollars to pay the debt.

(ii) Bank rate: When the central bank of a country changes the bank rate, then the exchange rate also changes, the decrease in the bank rate will result in outflow of capital, as a result, there will be a decrease in the supply of foreign exchange and the exchange rate will decrease. rate forex sidewill be converted in opposition to the domestic currency.

(iii) Trade practices Import and export have a direct impact on the exchange rate. If a country’s exports exceed its imports, then the demand for foreign exchange stops.Is. On the contrary, if imports are more than exports, then there is a decrease in foreign exchange.

(iv) Control of exchange rate: When a country controls the exchange, the demand for this foreign currency decreases and the exchange rate changes in favor of the domestic currency of the country controlling the exchange.

(v) Speculation Speculation also affects foreign exchange. If speculators predict that the British pound will increase in value in the future. Then it will increase the demand for the pound in the exchange market at a higher price in the future.


CLASS 12 NCERT SOLUTION IN ENGLISHCLASS12 NCERT SOLUTION IN HINDI
Historyइतिहास
Geography भूगोल
Political science राजनीति विज्ञान
English SubjectResult
Hindi SubjectHistory answer keys
Sociology समाज शास्त्र
Economicsअर्थशास्त्र

FAQs


Q. At what point is the elasticity of the demand curve?

Ans. The elasticity of demand curve is at that point where the price elasticity is greater than unity.

Q. What is oligopoly?

Ans. Oligopoly is an important form of perfect competition. Oligopoly is a market situation in which there are few large firms.

Q. When does the monopoly firm increase its production?

Ans. The monopoly firm increases its output when marginal revenue (Revenue) is greater than marginal cost.


NOTES & QUESTIONS ANSWER



MCQS IN ENGLISH



class12.in

Leave a Comment