money supply, banking & financial institutions section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

Managed currency refers to a currency whose exchange rate is not determined by the free-market forces of demand and supply but instead by the government’s intervention through the country’s central bank.

The majority of major world currencies are managed at least to some degree.

Answer: (b)

Demand deposits are funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. Demand deposits can be “demanded” by an account holder at any time.

Many checking and savings accounts today are demand deposits and are accessible by the account holder through a variety of banking options, including teller, ATM and online banking.

In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period (typically the loan’s term).

Answer: (d)

The money supply is the total amount of monetary assets available in an economy at a specific time. The relation between money and prices is historically associated with the quantity theory of money.

There is strong empirical evidence of a direct relation between long-term price inflation and money-supply growth, at least for rapid increases in the amount of money in the economy.

Answer: (b)

Suppose (Nominal) exchange rate is $1 = Rs. 60

Now if an Indian exporter exported a particular commodity (1 unit) in the international market whose price is $8,

then he will get $8 and after conversion in India, he will get ultimately Rs. 480.

But if the rupee depreciated i.e. $1 = Rs. 64

then he can sell his product in the international market at a lesser price of $7.5 and can earn the same Rs. 480 after conversion. (When a country devalues its currency, then exporters are able to sell their product in the international market at a lesser price without compromising their earnings.)

So, we also say that exporters become more competitive and demand for domestic goods and services increases as the price gets reduced.

So, exporters will not earn more dollars when the rupee depreciates. He will still get the same dollars or if he reduces the price, then he will get fewer dollars per unit of goods sold.

So, (ii) the statement is false.

Answer: (b)