Question

An Indian tourist in London cannot settle hotel bills using Indian rupees directly. This situation illustrates that:

Options

• The Indian rupee is the official currency of London

• The exchange rate is fixed at one rupee per pound (£)

• Payments for tourist services abroad require the foreign country's national currency, obtained through the foreign exchange market

• Monetary authorities prohibit all international travel

Answer 1

Since London's national currency is the pound (£), an Indian resident must obtain pounds to pay for tourist services. This demonstrates how the need for foreign exchange arises when making payments in another country's currency.