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Chapters
1: Microeconomics and Macroeconomics: Introduction
2: Demand and Law of Demand
3: Theory of Consumer Behaviour: Marginal Utility and Indifference Curve Analysis
4: Elasticity of Demand
5: Supply - Law of Supply and Price Elasticity of Supply
6: Market Mechanism: Equilibrium Price and Quantity in a Competitive Market
7: Laws of Returns - Returns to a Factor and Returns to Scale
8: Cost and Revenue Analysis
9: Forms of Market
10: Producer's Equilibrium
11: Determination of Equilibrium Price and Output Under Perfect Competition
SECTION 2: THEORY OF INCOME AND EMPLOYMENT
12: Theory of Income and Employment
SECTION 3: MONEY AND BANKING
13: Money: Meaning and Functions
14: Banks: Commercial Bank and Central Bank
SECTION 4: BALANCE OF PAYMENTS AND EXCHANGE RATE
▶ 15: Balance of Payments and Exchange Rate
SECTION 5: PUBLIC FINANCE
16: Fiscal Policy
17: Government Budget
SECTION 6: NATIONAL INCOME
18: National Income and Circular Flow of Income
19: National Income Aggregates
20: Methods of Measuring National Income
SECTION 7: PROJECT WORK
21: Project Work
22: Model Short Answer Questions
![Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 15 - Balance of Payments and Exchange Rate - Shaalaa.com](/images/economics-english-class-12-isc_6:872f47036b5c4267ae061d4279703803.jpg "Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 15 - Balance of Payments and Exchange Rate")
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Solutions for Chapter 15: Balance of Payments and Exchange Rate
Below listed, you can find solutions for Chapter 15 of CISCE Frank for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी.
Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी 15 Balance of Payments and Exchange Rate TEST YOURSELF QUESTIONS [Pages 315 - 322]
Select correct option for each of the following questions: (1 mark each)
A systematic record of economic transactions between residents of a country and rest of the world is known as ______.
balance of trade
balance of payments
balance of current account
balance of capital account
The current account under the balance of payments of a country records ______.
export and import of goods
export and import of services
unilateral transfer
all of these
The balance of capital account under the balance of payments of a country records which of the following transactions:
borrowing and lending from abroad
sales and purchase of assets abroad
export and import of services
none of these
International financial transactions which take place because of normal economic considerations (motives life earnings of profits, dividends, etc.) are known as ______.
autonomous capital flows
accommodating capital flows
visible items of trade
unilateral transfers
International economic transaction which take place to bring the balance of payments into equilibrium are known as ______.
autonomous capital flows
accommodating capital flows
visible items of trade
unilateral transfers
The term balance of trade denotes the difference between ______.
exports and imports of services
export and import of goods
net unilateral transfers
income receipts from abroad and income payments made to foreign countries by the residents of a country
If India exports goods worth ₹200 crores and imports goods worth ₹300 crores, it will have a:
surplus of ₹100 crores in balance of trade
deficit of ₹150 crores in balance of trade
deficit of ₹100 crores in balance of trade
None of these
The balance of trade of India shows a deficit of ₹ 8000 crores and the value of imports is ₹ 10,000 crores. What is the value of exports?
₹ 2000 crores
₹ 3000 crores
₹ 4000 crores
₹ 5000 crores
Which of the following items will be recorded on the credit side of the balance of payments account of a country?
Imports of goods
Borrowings from abroad
Unilateral transfer payments made to foreigners
Purchase of assets abroad
Which of the following items will be recorded on the debit side of the balance of payments account of a country?
Loan from USA
Imports of services
Unilateral transfer payments made to foreigner
Sale of assets to foreigners
Reliance Industries of India invests in a company located in Mauritius. This transaction is entered in India's balance of payments account under ______.
credit side of current account
debit side of current account
credit side of capital account
debit side of capital account
If India’s imports of goods exceeds its exports of goods, it is referred to as ______.
Balance of payment deficit
Fiscal deficit
Balance of trade deficit
All of these
Exchange rate is the value of a currency expressed in terms of ______.
gold
another currency
metal
none of these
When the value of Indian rupee falls in relation to American dollar under flexible exchange rate system, it is a situation of ______.
Appreciation of rupee
Depreciation of rupee
Revaluation of Indian rupee
None of these
If the exchange rate changes from 1$ = ₹ 86 to 1\$ = ₹ 88, it implies that ______.
Indian rupee has depreciated
the rupee has appreciated
the dollar has depreciated
the rupee has revalued
If the rate of exchange of Indian currency vis-a-vis American dollar changes from 1\$ = ₹ 87 to 1$ = ₹ 85, we will say that ______.
the dollar has appreciated
the rupee has appreciated
the rupee has depreciated
the rupee has devalued
Under flexible exchange rate system, the rate of exchange between Indian rupee and US dollar is determined by ______.
The RBI
US Federal Bank
IMF
foreign exchange market
Depreciation of Indian rupee vis-a-vis American dollar will lead to:
fall in the value of rupee relative to dollar
increases the domestic price of imports
the quantity of India's import decreases
all of these
The value of dollar increases from ₹ 85 a dollar to ₹ 88 a dollar. As a result of it, which of the following effects will take place?
Imports will rise and exports will fall.
Imports will fall and exports will rise.
Imports will remain the same and exports will rise.
Both imports and exports will fall.
Identify the correct matched pair of items from Column I and Column II.
| Column I | Column II |
| A. Imports of petroleum from Iran | 1. Credit side of Current Account |
| B. BPO services provided by Indian companies to USA | 2. Debit side of Capital Account |
| C. Investment made abroad by Reliance Industries | 3. Credit side of Capital Account |
| D. Borrowing from abroad | 4. Debit side of Current Account |
A - 1, B - 2, C - 3, D - 4
A - 4, B - 3, C - 2, D - 1
A - 4, B - 2, C - 3, D - 1
A - 4, B - 1, C - 2, D - 3
From the statements given in Column I and Column II, choose the correct pair of statements.
| Column I | Column II |
| A. Reduction in the value of domestic currency by the government action | 1. Depreciation |
| B. Decrease in the value of domestic currency by the market forces | 2. Devaluation |
| C. Increase in the value of domestic currency by the government action | 3. Appreciation |
| D. Increase in the value of domestic currency by market forces | 4. Revaluation |
A - 2, B - 1, C - 4, D - 3
A - 2, B - 1, C - 3, D - 4
A - 1, B - 2, C - 3, D - 4
A - 4, B - 3, C - 2, D - 1
Identify the correctly matched pairs from Column I and Column II.
| Column I | Column II |
| (1) Flexible exchange rate | (a) Foreign exchange rate determined by the Central Bank |
| (2) Fixed exchange rate | (b) Exchange rate determined by market forces of demand and supply |
| (3) Managed exchange rate | (c) Fall in the value of domestic currency against a foreign currency |
| (4) Depreciation | (d) Central bank buys and sells foreign currency to moderate exchange rate movements |
Given below are two statements marked as Assertion (A) and Reason (R). Read the statements carefully and choose the correct option.
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.
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation for Assertion (A).
Assertion (A) is true and Reason (R) is false.
Both Assertion (A) and Reason (R) are false.
Assertion (A): Exports of goods and services from India to USA would mean inflow of foreign exchange into India.
Reason (R): Foreign exchange arising due to receipts from exports of goods and service flows from USA to India.
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation for Assertion (A).
Assertion (A) is true and Reason (R) is false.
Both Assertion (A) and Reason (R) are false.
Assertion (A): In case of a flexible exchange rate system, the foreign exchange rate is determined by the demand and supply of foreign exchange.
Reason (R): The government is not responsible for stabilising the external value of the domestic currency under the flexible exchange rate mechanism.
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
Assertion (A) is true, but Reason (R) is false.
Assertion (A) is false, but Reason (R) is true.
Very Short Answer Questions (2 marks each)
What do you understand by balance of payments?
Name two accounts of balance of payments.
State the basic rule of recording transactions in a balance of payments account.
Give two examples of items to be recorded on the credit side of the balance of payments.
Give two examples of items to be recorded on the debit side of the balance of payments.
What are visible transactions? Give examples.
What are invisible transactions? Give examples.
Mention two invisible items in the balance of the payments of a country.
What are current account transactions?
Name the types of transactions recorded in the current account of the balance of payments.
What are unilateral transfers?
Unilateral transfers are part of invisible items?
What types of transactions are recorded in a capital account?
List two items of the capital account of the balance of payments.
Distinguish between balance of current account and balance of capital account.
What does SDR stand for?
Define balance of trade.
What is meant by balance of current account?
What is balance of capital account?
Distinguish between an autonomous transaction and accommodating transactions of the balance of payments account.
Distinguish between balance of current account and balance of capital account.
Give two differences between current account and capital account of balance of payments account.
Distinguish between balance of payments and balance of trade.
Distinguish between balance of payments and balance of trade.
When is a country's balance of payments said to be adverse (unfavourable)?
When is a country's balance of payments said to be favourable?
Explain any two causes of deficits in the balance of payments.
State two measures to correct disequilibrium in the balance of payments.
What is meant by exchange controls?
What is meant by foreign exchange?
Define foreign exchange market.
What is meant by exchange rate?
Name two ways of expressing the foreign exchange rate.
State the two exchange rate systems.
What is fixed exchange rate system?
What is a flexible (floating) exchange rate system?
What is the exchange rate system prevailing in most of the countries of the world at present? Define it.
Give one difference between flexible exchange rate and fixed exchange rate.
What is ‘devaluation’?
Differentiate between devaluation and depreciation.
Differentiate between revaluation of currency and appreciation of the currency.
How does depreciation (devaluation) affect the imports of a country?
How does depreciation (devaluation) affect the exports of a country?
In what ways appreciation (revaluation) affect the international trade of a country?
Does the central bank of a country intervene in the foreign exchange market to influence it?
How is the rate of exchange determined in a flexible exchange rate system?
Briefly explain the effect of the following on the Balance of Payment of a country.
Inflationary pressure in the economy
Briefly explain the effect of the following on the Balance of Payment of a country.
Appreciation in the domestic exchange rate.
Short Answer Questions (3 marks each)
Discuss the various components of the current account of the balance of payments.
State any four items of the current account of the balance of payments account.
State any four items of capital account of the balance of payments account.
State the components of capital account of balance of payments.
Distinguish between balance of trade, balance of current account and balance of capital account.
Distinguish between balance of trade and balance of invisibles in the balance of payments.
“Balance of payments must always balance.” Comment.
Explain any three causes for disequilibrium in the balance of payments of a country.
Explain three export promotion measures.
How can the government correct an adverse balance of payments through export promotion?
How can the government correct an adverse balance of payments through import control?
Give one difference between flexible exchange rate and fixed exchange rate.
What is the extent of intervention by the central bank under a fixed exchange rate system?
What is the extent of intervention by the central bank under a flexible exchange rate system?
Differentiate between devaluation and depreciation.
How devaluation and depreciation affect the foreign trade of a country.
Differentiate between devaluation and depreciation.
How can depreciation of a currency be a measure of correcting disequilibrium of ‘balance of payments’?
How do changes in exchange rates influence domestic prices?
State the main sources of demand for foreign exchange.
State the main sources of supply of foreign exchange.
Explain the relationship between foreign exchange rate and demand for foreign exchange.
Why is the demand curve for foreign exchange negatively sloped?
Explain the relationship between foreign exchange rate and supply of foreign exchange.
Why does the supply of foreign exchange increase with an increase in the foreign exchange rate?
Long Answer Questions (6 marks each)
What do you understand by balance of payments?
Bring out the components of balance of payments account.
State the items included in the balance of payments of a country.
State any four items of the current account of the balance of payments account.
State any four items of capital account of the balance of payments account.
Discuss the various components of the current account of the balance of payments.
Explain the concept of 'deficit' in the balance of payments.
Explain the factors which give rise to a deficit in the balance of payments.
Explain any four causes of an adverse balance of payments of a country.
State two measures to correct disequilibrium in the balance of payments.
State two measures to correct disequilibrium in the balance of payments.
Differentiate between devaluation and depreciation.
Differentiate between revaluation of currency and appreciation of the currency.
How is the exchange rate determined under a flexible exchange rate regime?
‘The flexible exchange rate system is a system of automatic adjustment in the balance of payments disequilibrium.’ Explain with the help of a diagram.
Passage Based Questions (8 marks each)
Read the passage below and answer the questions that follow.
| Economic crises in Sri Lanka in June and July 2020 arose from years of high fiscal deficits, translating into high current account deficits, empty foreign exchange reserves and hence soaring inflation and debt default. This holds lessons for India. At the present juncture (July, 2022) India has a high combined fiscal deficit of 11 percent for the center and the states. The current account deficit is likely to be 3 percent of GDP. Consumer inflation is 7 percent, and wholesale price inflation is 15 percent. We need to overcome this situation so as to avoid a likely economic crisis. |
- What is meant by foreign exchange? [1]
- What is balance of current account? [2]
- Define depreciation of rupee. [1]
- What is public debt? State two adverse effects of public debt. [2]
- Distinguish between demand-pull inflation and cost-push inflation. [2]
Read the passage below and answer the questions that follow.
|
India’s Balance of Payments (BOP) encountered pressure during 2022-23. While the impact of sharp rise in prices led to widening of the Current Account Deficit (CAD), notwithstanding the cushion provided by the surplus in the invisibles (services, transfers and income). Monetary Policy lightening of the US Federal Reserve and strengthening of the US dollar led to Foreign Portfolio Investment outflow. As a result, the surplus of Capital Account was lower than the CAD, leading to depletion of foreign exchange reserves. Over time, trade opening of countries across globe has been increasing as measured by trade as a proportion of GDP. For India as well, the share of trade as percentage of GDP has been steadily increasing, which stood at 46% in 2021. India maintained its domination in the world services during 2022-23 recording a growth of 23.5 per cent during 2021-22. The exchange rate of the Indian Rupee is market-determined as the RBI's intervention in the foreign exchange market is mainly to contain instances of economic volatility. The Indian Rupee depreciated by 10.8 per cent in 2022. (Economic Survey 2022-23) |
- What is current account deficit? [1]
- What is meant by balance of capital account? [1]
- Define rate of foreign exchange. [1]
- What exchange rate system prevails in India? [2]
- Distinguish between depreciation and devaluation of currency. [2]
- State the trend in India’s foreign trade as percentage of GDP. [1]
Thinking Beyond...
How do capital movements affect the exchange rates?
How does RBI intervenes to influence the exchange rate?
Solutions for 15: Balance of Payments and Exchange Rate
Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 15 - Balance of Payments and Exchange Rate
Shaalaa.com has the CISCE Mathematics इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी CISCE solutions in a manner that help students grasp basic concepts better and faster. The detailed, step-by-step solutions will help you understand the concepts better and clarify any confusion. Frank solutions for Mathematics इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी CISCE 15 (Balance of Payments and Exchange Rate) include all questions with answers and detailed explanations. This will clear students' doubts about questions and improve their application skills while preparing for board exams.
Further, we at Shaalaa.com provide such solutions so students can prepare for written exams. Frank textbook solutions can be a core help for self-study and provide excellent self-help guidance for students.
Concepts covered in इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 15 Balance of Payments and Exchange Rate are Concept of Balance of Payments, International Linkages, Open Economy and Its Linkages, Balance Payment, Definitions of Balance Payments, Meaning of Balance of Payments, Balance of Trade, Balance of Invisible Trade, Components of Balance of Payments, Current Account, Capital Account, Categories of Balance of Payments, Balance of Trade vs Current Account Balance, Structure of Balance of Payments, Methods to Measure Balance of Payments, Capital Account Balance, Balance of Payments Surplus and Deficit, Autonomous and Accommodating Items, Balance of Payments Disequilibrium, Terms of Trade - Errors and Omissions Excepted (E&OE), Advantages of Fixed Exchange Rate, Disadvantages of Flexible Exchange Rate, Factors Responsible for Exchange Rate Fluctuation, Causes Behind Unfavourable Bop, Remedies for Unfavourable Bop, Monetary and Fiscal Policies to Correct Disequilibrium in the BOP Account, Fiscal policies, Foreign Exchange Rate, Foreign Exchange, Exchange Rate System, Demand for Foreign Exchange, Supply of Foreign Exchange, Determination of Equilibrium Exchange Rate, Shifts of the Demand Curve, Shifts of the Supply Curve, Disadvantages of Fixed Exchange Rate, Advantages of Flexible Exchange Rate, Types of Exchange Rate, Some Related Concepts of Exchange Rate, Difference Between Devaluation and Depreciation.
Using Frank इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी solutions Balance of Payments and Exchange Rate exercise by students is an easy way to prepare for the exams, as they involve solutions arranged chapter-wise and also page-wise. The questions involved in Frank Solutions are essential questions that can be asked in the final exam. Maximum CISCE इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी students prefer Frank Textbook Solutions to score more in exams.
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