MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Balance of Payments Class 12 MCQs Questions with Answers

Question 1.

An Indian real estate company receives rent from Google in New York. This transaction would be recorded on side of account.

(A) credit, current
(B) debit, capital
(C) credit, capital
(D) debit, current
Answer:
(A) credit, current

Explanation:
It is an inflow of money and it is recurring in nature.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 2.

A company located in India receives a loan from a company located abroad. How is this transaction recorded in India’s Balance of Payments Account?

(A) Credit side of current account
(B) Debit side of current account
(C) Credit side of capital account
(D) Debit side of capital account
Answer:
(C) Credit side of capital account

Explanation:
It is an inflow of money in Indian economy.

Question 3.

An Indian company located in India invests in a company located abroad. This transaction is entered in India’s Balance of Payments Account on:

(A) Credit side of current account.
(B) Debit side of current account.
(C) Credit side of capital account.
(D) Debit side of capital account.
Answer:
(D) Debit side of capital account.

Explanation:
It is an outflow of money from Indian economy.

Question 4.

Foreign Exchange Transactions which are independent of other transactions in the Balance of Payments Account are called:

(A) Current transactions.
(B) Capital transactions.
(C) Autonomous transactions.
(D) Accommodating transactions.
Answer:
(C) Autonomous transactions.

Explanation:
Autonomous transactions are independent of the state of BOP Account. For example, if a foreign company is making investments in India with the aim of earning profit, then such a transaction is independent of the country’s BOP situation.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 5.

Foreign Exchange Transactions dependent on other Foreign Exchange Transactions are called:

(A) Current account transactions.
(B) Capital account transactions.
(Q Autonomous transactions.
(D) Accommodating transactions.
Answer:
(D) Accommodating transactions.

Explanation:
Accommodating transactions are those that are undertaken as a consequence of the autonomous transactions.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 6.

Which of the following statements is not true?

(A) Borrowings from the Asian Development Bank by the government is an accommodating transaction.
(B) Loans given to Sri Lanka by the government is an accommodating transaction.
(C) Buying of machinery from Japan is an accommodating transaction.
(D) Borrowing from public is an accommodating transaction.
Answer:
(C) Buying of machinery from Japan is an accommodating transaction.

Explanation:
Buying of machinery from Japan is an autonomous transaction. Autonomous items refers to those Balance of Payment (BOP) transactions which are undertaken for profit.

Question 7.

Identify the correct sequence of alternatives given in Column B by matching them with respective Column A:

Column A Column B
(1) Borrowings from IMF (a) Current Account
(2) Import of shipping services (b) Invisible items
(3) Export of machinery (c) Accommodating items
(4) Foreign aid (d) Visible items

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(B) 2 – (b)

Explanation:
Invisible items refer to those items which cannot be seen, felt, touched or measured. For example, services of shipping, banking, insurance, etc.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 8.

Identify the correct matched pair from Column A to Column B:

Column A Column B
(1) Import of Petroleum from Iran (a) Debit side of Current Account
(2) BPO services provided by India to USA (b) Credit Side of Capital Account
(3) Investment by Saudi Aramco in RIL (c) Debit Side of Capital Account
(4) Export of Spices to Greece (d) Debit Side of Current Account

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(A) 1 – (a)

Explanation:
Import of goods and services are recorded in current account. Import is recorded on the debit side as it leads to an outflow of foreign exchange in the country.

Question 9.

Identify the correctly matched pair from Column A to Column B:

Column A Column B
(1) Increase of Foreign Reserve from $400 to $450 millions (a) Credit side of Capital Account
(2) Dasault Ltd. invested in Reliance Defence (b) Debit Side of Capital Account
(3) India gave line of credit to Botswana (c) Credit Side of the Capital Account
(4) India borrowed $ 350 million from the world bank (d) Debit Side of the Capital Account

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(B) 2 – (b)

Assertion and Reason Based MCQs

Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 1.

Assertion (A): Import of machinery is reflected in the current account of balance of payments.
Reason (R): Export and import of goods and invisibles are recorded in current account of balance of payments.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

Question 2.

Assertion (A): The level of aggregate demand tends to rise.
Reason (R): Exports are more than imports.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

Explanation:
Aggregate demand is based on four components. These are: consumption, investment, government spending and net exports. Exports leads to a rise in AD.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 3.

Assertion (A): Autonomous items cause movements of goods and services across the borders.
Reason (R): Accommodating items cause to clear the deficit or surplus in the Balance of Payment.

Answer:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).

Explanation:
Autonomous items refers to those Balance of Payment (BOP) transactions which are undertaken for profit.

Question 4.

Assertion (A): Current account is a part of Balance of Trade.
Reason (R): Current account records exports and imports of goods and services and transfer payments.

Answer:
(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Balance of Trade is a part of current account.
Balance on Current Account =Trade balance + Invisibles balance

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Case-Based MCQs

see opportunities of growth,” he said at a FICCI webinar. India’s exports fell for the fourth straight month in June as shipments of key segments like petroleum and textiles declined but the country’s trade turned surplus for the first time in 18 years as imports dropped by a steeper 47.59 per cent. The country posted a trade surplus of USD 0.79 billion in June. “Balance of payments to be ‘very, very strong’ this year, green shoots visible in economy: Piyush Goyal” – The Economic Times-August 10th, 2020

Question 1.

Why is India having a very strong Balance of Payment?

(A) Increase in Exports
(B) Decrease in Imports
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Explanation:
A Balance of Payments surplus means the country exports more than it imports.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 2.

Read the following statements – Assertion (A) and Reason (R).
Assertion (A): The country’s trade turned surplus for the first time.
Reason (R): India’s exports fell for the fourth straight month in June.
Select the correct alternative from the following:

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Answer:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).

Explanation:
Imports dropped by a steeper 47.59 percent.

Question 3.

Consider the following statements:

(i) It will get a lot of investments.
(ii) The government can achieve its development goals.
(iii) Increase the GDP of the economy.
(iv) It is more profitable for the domestic manufacturers.
Which of the following is the true benefit of having a strong Balance of Payment:
(A) i and iii only
(B) iii and iv only
(C) i, iii and iv only
(D) i, ii, iii and iv
Answer:
(B) iii and iv only

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 4.

……………… is the situation when the imports of goods are more than the export of goods.

(A) Trade Surplus
(B) Trade Deficit
(C) Either (A) or (B)
(D) Neither (A) nor (B)
Answer:
(B) Trade Deficit

I. Read the news report given below and answer the questions that follow on the basis of the same:
A lower trade deficit along with strong FDI and portfolio flows in F/Y 19 January-March quarter may help the external sector balance sheet and prop up both current account as well as the overall balance of payments numbers. This could reflect in a lower current account deficit in the balance of payments for the quarter ended March.

Trade balance, an important component of the current account, is estimated at a deficit of $35.6 billion for Q4 compared to $40.6 billion in the same period a year ago, thanks to lower crude prices and slowdown in gold and other imports. Other factors influencing the current account are software services income and remittances by overseas IndiAnswer: Market estimates for F/Y 19 March quarter current account deficit is at $8.1 billion versus $13.2 billion for March’18 quarter.

In the capital account, thanks to some bidding for defaulting companies by Arcelor Mittal which are expected to have bought in some funds, FDI inflows in March is projected to be almost double the amount in the previous comparable period of March’18. Also, external commercial borrowing flows in the latest quarter are almost double the amount of previous comparable quarter ending March’18.

In addition, forex resources raised through the swap agreements with the commercial banks are expected to add another $5 billion through the foreign investment route. The overall balance of payments surplus is estimated higher at $17 billion for the latest March quarter compared to $13 billion surplus in the March’18 quarter.
– “Fall in trade deficit, strong flows boost balance of payments no’s in Q4″~ The Economic Times – May 15th, 2019.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 1.

Which of the following is not the benefit of a lower trade deficit?

(A) Help the external sector balance sheet.
(B) Prop-up the Current Account.
(C) Increase the Balance of Payment numbers.
(D) Increase the Capital Account deficit.
Answer:
(D) Increase the Capital Account deficit.

Question 2.

FDI inflows in March is a type of ……………

(A) Accommodating transactions
(B) Accumulating transactions
(C) Autonomous transactions
(D) None of the above
Answer:
(C) Autonomous transactions

Explanation:
Foreign direct investments are autonomous transactions of long-term capital movements, motivated by economic interests, with the profit at the first place.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 3.

The Forex resources has surged in India. What effect does it have on the country?

(A) Balance of Payment surplus
(B) Balance of Trade surplus
(C) Balance of Payment deficit
(D) Balance of Trade deficit
Answer:
(A) Balance of Payment surplus

Explanation:
The Balance of Payments of a country is the difference between all money flowing into the country in a particular period of time and the outflow of money to the rest of the world.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 4.

FDI inflows is recorded in which of the following accounts of Balance of Payment;

(A) Current Account
(B) Capital Account
(C) Foreign Reserve Account
(D) Depends on the type of FDI
Answer:
(B) Capital Account

Explanation:
Foreign Investment cause an inflow of foreign exchange into the country. Thus, it is recorded as positive items in the Capital Account of BOR

II. Read the news report given below and answer the questions that follow on the basis of the same:
The trade deficit between India and China in April-June this fiscal year fell to USD 5.48 billion as compared to USD 13.1 billion in the same period last year, Parliament was informed on Wednesday.

In a written reply, Commerce and Industry Minister Piyush Goyal said the bilateral trade between the countries too dipped to USD 16.55 billion during the first three months of 2020-21 as against USD 21.42 billion in the same period last year. “Government has consistently taken steps to balance our trade with China by increasing our exports to China and reducing our dependence on imports from China,” he said.

In a separate reply, the minister said at present, about 550 tariff lines (or products) are under the restricted/prohibited category for imports under the Foreign Trade Policy. Imports of these products are restricted from all countries, including China. Replying to a separate question, he said merchandise exports from special economic zones (SEZs) dipped to ₹81,481 crore during April- August, 2020 as against ₹1,30,129 crore in the same period of 2019-20. “However, services exports have shown a growth of 9 per cent during April to August 2020 in comparison to corresponding period of previous year,” he added.
– “Indo-China trade deficit dips to $5.48 billion in April-June” – The Economic Times – September 16, 2020

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 1.

Considering the steps taken by the government to reduce the Trade deficit with China, choose the correct alternative:

(i) To reduce the dependence on imports from China.
(ii) To increase our exports to China
(iii) To make Rupees stronger than Yuan
(iv) To prohibit the use of the Chinese good.

(A) (i) and (ii)
(B) (ii) and (iii)
(C) (i), (ii) and (iii)
(D) (iii) and (iv)
Answer:
(A) (i) and (ii)

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Explanation:
Minister Piyush Goyal said, “Government has consistently taken steps to i balance our trade with China by increasing our exports to China and reducing our dependence on imports from China.”

Question 2.

Which of the following has seen a growth?

(A) Trade deficit with China
(B) Imports of merchandise
(C) Export of merchandise
(D) Export of service
Answer:
(D) Export of service

Explanation:
Services exports have shown a growth of 9 per cent during April to August 2020.

Question 3.

The bilateral trade between India and China dipped to …………..

(A) 5.48 Billion USD
(B) 13.1 Billion USD
(C) 16.55 Billion USD
(D) 21.42 Billion USD
Answer:
(C) 16.55 Billion USD

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 4.

550 tariff lines (or products) are under the restricted/prohibited category for ………….. under the Foreign Trade Policy.

(A) imports
(B) exports
(C) either (A) or (B)
(D) neither (A) nor (B)
Answer:
(A) imports

Foreign Exchange Rate Class 12 MCQs Questions with Answers

Question 1.

Identify which of the following statement is true?

(A) The flexible exchange rate system gives the government more flexibility to maintain large stocks of foreign exchange reserves.
(B) In the managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
(C) In the managed floating exchange rate system, the central bank intervenes to moderate exchange rate fluctuations.
(D) In the fixed exchange rate system, market forces fix the exchange rate.

Answer:
(C) In the managed floating exchange rate system, the central bank intervenes to moderate exchange rate fluctuations.

Explanation:
Managed floating exchange rate system is the amalgamation of the flexible exchange rate system and the fixed exchange rate system. Under this system, central banks intervene to buy and sell foreign currencies in an attempt to moderate exchange rate movements.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 2.

Foreign exchange refers to:

(A) the price of one currency in terms of gold in the domestic market.
(B) the price of one currency determined by government of other country.
(C) the price of one currency in relation to other currencies in the international money market.
(D) none of the above.
Answer:
(C) the price of one currency in relation to other currencies in the international money market.

Question 3.

Identify the correctly matched pair from Column Ato that of Column B:

Column A Column B
(1) Flexible Ex-change Rate (a) Foreign Exchange Rate is determined by the Central Bank.
(2) Fixed Exchange Rate (b) The foreign ex¬change rate is determined by the demand and supply.
(3) Managed Flexible Rate (c) The Central Bank interferes with the market demand and supply of foreign currency.
(4) Managed Fixed Rate (d) The Central Bank controls the foreign rate regime.

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D)4 – (d)
Answer:
(C) 3 – (c)

Explanation:
Managed floating exchange rate system is the amalgamation of the flexible exchange rate system and the fixed exchange rate system. Under this system, central bank intervenes to buy and sell foreign currencies in an attempt to moderate exchange rate movements.

Question 4.

Which of the following statements is not true?

(A) Depreciation of the foreign currency leads to the fall in exports.
(B) Devaluation of the domestic currency leads to a rise in imports.
(C) Appreciation of domestic currency leads to rise in exports.
(D) Appreciation of foreign currency leads to fall in imports.
Answer:
(A) Depreciation of the foreign currency leads to the fall in exports.

Explanation:
Depreciation of home currency implies fall in the price of domestic goods for the foreign buyers.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 5.

When domestic currency loses its value in relation to a foreign currency in the international money market, it is a situation of:

(A) Currency appreciation
(B) Currency depreciation
(C) Currency devaluation
(D) None of the above
Answer:
(B) Currency depreciation

Explanation:
Depreciation of domestic
currency refers to fall in the value of domestic currency in terms of foreign currency caused by rise in foreign exchange rate in the foreign exchange market.

Question 6.

Exchange rate is the price of a currency expressed in terms of:

(A) gold.
(B) metal.
(C) another currency.
(D) none of the above.
Answer:
(C) another currency.

Explanation:
It is the rate at which one currency can be converted into another currency.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 7.

Identify the correct pair as given in Column B by matching them with respective concepts …………… in Column A:

Column A Column B
(1) Reduction in the value of domestic currency by the government (a) Devaluation
(2) Reduction in the value of domestic currency through market forces (b) Appreciation
(3) Increase in the value of domestic currency by the government (c) Depreciation
(4) Increase in the value of domestic currency through market forces (d) Revaluation

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(A) 1 – (a)

Explanation:
Devaluation refers to fall in the value of a domestic currency due to a deliberate increase in foreign exchange rate by the government which follows a fixed exchange rate system.

Assertion and Reason Based MCQs

Directions:
In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as.
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.

Question 1.

Assertion (A): When in order to buy US dollar ₹ 80 are needed instead of ₹ 75, domestic currency shows depreciation.
Reason (R) : Depreciation of domestic currency refers to fall in the value of domestic currency in terms of foreign currency caused by rise in foreign exchange rate in the foreign exchange market.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

Explanation:
Here, domestic currency shows depreciation because more rupees are to be paid to buy one US dollar.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 2.

Assertion (A): Export of goods and services from India to US would mean outflow of foreign exchange from India.
Reason (R): Foreign exchange in terms of receipts for exports flows from US to India.

Answer:
(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Export of goods and services I from India to US would mean inflow of I foreign exchange to India.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 3.

Assertion (A): In case of currency appreciation, less rupees are to be paid to buy one US dollar.
Reason (R): Currency appreciation leads to increase in value of domestic currency in reference to foreign currency. So, less in needed to pay for same amount.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

Explanation:
Export of goods and services I from India to US would mean inflow of I foreign exchange to India.

Question 4.

Assertion (A): In order to restore the value of depreciating domestic currency, Central Bank sells the US dollars in the international money market.
Reason (R): By selling US dollars, supply of dollars will increase which will reduce the price of dollar.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Case-Based MCQs

I. Read the news report given below and answer the questions that follow with respect to the same:
The rupee depreciated by 6 paise to close at 73.02 (provisional) against the US dollar on Monday, tracking a rebound in the American currency overseas.

At the interbank Forex market, the domestic unit opened at ₹ 72.89 against the US dollar and witnessed an intra-day high of ₹ 72.84 and a low of ₹ 73.15. The local unit finally settled at ₹ 73.02, registering a fall of 6 paise over its previous close, even as the domestic equity market settled with significant gains on Budget day.

On Friday, the rupee had closed at ₹ 72.96 against the American currency. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.21 per cent to ₹ 90.78. On the domestic equity market front, the BSE Sensex ended 2,314.84 points or 5 per cent higher at 48,600.61, while the broader NSE Nifty advanced 646.60 points or 4.74 per cent to 14,281.20.

Foreign institutional investors were net sellers in the capital market as they offloaded shares worth ₹ 5,930.66 crore on Friday, according to exchange data. Brent Crude Futures, the global oil benchmark, advanced 0.84 per cent to USD 55.50 per barrel.
– “Rupee tumbles 6 paise to close at ₹ 73.02 against US dollar” – The Economic Times – February 01, 2021

Question 1.

How will the devaluation of Indian Rupee affect the imports?

(A) Imports will fall.
(B) Imports will rise.
(C) Imports will have no effect.
(D) None of the above
Answer:
(A) Imports will fall.

Explanation:
Imports become more expensive.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 2.

How will the devaluation of Indian Rupee affect the exports?

(A) Exports will fall.
(B) Exports will rise.
(C) Exports will remain same.
(D) Exports will fall first and then rise.
Answer:
(B) Exports will rise.

Explanation:
Exports become cheaper.

Question 3.

Read the following statements – Assertion (A) and Reason (R).

Assertion (A): Forex reserve of the country will fall.
Reason (R): Due to devaluation of domestic currency.
Select the correct alternative from the following:

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

Explanation:
Imports becomes more expensive, i.e., the domestic buyers will now have to pay more for imports.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 4.

How is the exchange rate determined in India?

(A) By the government.
(B) By the demand and supply of Foreign Currency
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Explanation:
India practices managed floating I exchange rate system in which the Central Bank has a major role to play.

II. Read the news report given below and answer the questions that follow with respect to the same:
The rupee rose by 3 paise to settle at ₹ 72.94 (provisional) against the US dollar on Monday, extending its gains for the fifth straight session despite heavy selling in the domestic equity market. At the interbank Forex market, the rupee opened at ₹ 72.95 against the American currency, and hit an intra-day high of ₹ 72.89 and a low of ₹ 72.96 in day trade.

It finally finished at ₹ 72.94, higher by 3 paise over its last close. On Friday, the rupee had settled at ₹ 72.97 against the American currency. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, advanced 0.10 per cent to ₹ 90.32.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

“The rupee has managed to hold its fort around the ₹ 72.90 to 73 levels, but given the sell-off in equities and the likelihood of a rebound in the dollar index, we see the trend tilting slightly towards depreciation going forward,” said Sugandha Sachdeva VP-Metals, Energy & Currency Research, Religare NSE 0.52 % Broking. – “Rupee rises for 5th straight session, settles 3 paise higher at ₹ 72.94” – The Economic Times – January 25, 2021

Question 1.

What is the benefit for the appreciation of the Indian Rupees?

(A) The Forex Reserve of the country will increase.
(B) The imports of the country will decline.
(C) There will be an increase in the Foreign Direct Investment.
(D) None of the above.
Answer:
(C) There will be an increase in the Foreign Direct Investment.

Question 2.

Which of the following is not the reason for increase in the price of rupees in the Forex Market?

(A) Increase in investment through FDI and FPI.
(B) Increase in the share and security market.
(C) Better government policies.
(D) Heavy selling in the domestic equity market.
Answer:
(D) Heavy selling in the domestic equity market.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 3.

India follows system of ………….. Foreign Exchange, as per the given report.

(A) Fixed Exchange Rate
(B) Flexible Exchange Rate
(C) Managed Floating Exchange Rate
(D) None of the above
Answer:
(C) Managed Floating Exchange Rate

Explanation:
India practices managed floating exchange rate system in which the Central Bank has a major role to play.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 4.

Rupee rose by …………… paise against USD.

(A) 2
(B) 3
(C) 4
(D) 5
Answer:
(B) 3

Explanation:
The rupee rose by 3 paise to settle at 72.94 (provisional) against the US dollar on Monday.

III. Read the news report given below and answer the questions that follow with respect to the same: NEW DELHI: India’s Foreign Direct Investment (FDI) saw a significant jump in November 2020. FDI data released by the Commerce Ministry shows that total FDI in the month of November 2020 grew by a whopping 81 % to $ 10.15 billion against $ 5.6 billion in November 2019. FDI equity has also jumped to $ 8.5 billion as against $ 2.8 billion in November 2019, registering a growth of 70 %.

India has attracted total FDI inflow of $ 58.37 billion during April to November 2020. It is the highest ever for the first eight months of a financial year (F.Y.) and 22 % higher as compared to the first eight months of 2019-20 ($ 47.67 billion). FDI equity inflow received during F.Y. 2020-21 (April to November 2020) is $ 43.85 billion. It is also the highest ever for the first eight months of a financial year and 37% more compared to the first eight months of 2019-20 ($ 32.11 billion), the data revealed.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

FDI is a major driver of economic growth and an important source of non-debt finance for the economic development of India. It has been the endeavour of the government to put in place an enabling and investor-friendly FDI policy, the Commerce Ministry said. The intent all this while has been to make the FDI policy more investor-friendly and remove the policy bottlenecks that have been hindering the investment inflows into the country.

The steps taken in this direction have borne fruit, as is evident from the ever-increasing volumes of FDI inflows being received into the country, it said. Measures taken by the Government on the FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country. The following trends in India’s Foreign Direct Investment are an endorsement of its status as a preferred investment destination amongst global investors.

– “India’s foreign direct investment inflows grew by 81 percent in November 2020 to $10 billion” – The Economic Times – January 28, 2021

Question 1.

What effect will the increase in foreign direct investment will have on the economy?

(A) Increase in the Forex Reserve
(B) Increase in the supply of Foreign Currency
(C) Decrease in the Exchange Rate
(D) All of the above
Answer:
(D) All of the above

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 2.

Why does the country foster for a higher Foreign Direct investment?

(A) FDI is a major driver of the Economic Growth.
(B) FDI helps in getting better foreign exchange returns.
(C) FDI helps the government to control foreign exchange rate.
(D) All of the above.
Answer:
(A) FDI is a major driver of the Economic Growth.

Question 3.

There has been an increase in the FDI. How has the government helped it?

(A) FDI policy reforms
(B) Ease of doing business
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Explanation:
Measures taken by the Government on the FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country.

MCQ Questions for Class 12 Economics Unit 5 Balance of Payments

Question 4.

When the FDI increases, the of foreign currency increases.

(A) Demand
(B) Supply
(C) Either (A) or (B)
(D) Neither (A) nor (B)
Answer:
(B) Supplys

Explanation:
It leads to inflow of foreign currency.

MCQ Questions for Class 12 Economics with Answers