Consider the following statements: The price of any currency in international market is decided by the1. World Bank2. Demand for goods/services provided by the country concerned3. Stability of the government of the concerned country4. Economic potential of the country in questionWhich of the statements given above are correct?
✓ Correct answer: b) 2 and 3 only
ExplanationStatement 1 is incorrect : The World Bank does not determine currency exchange rates; these are influenced by market forces and economic indicators.The World Bank is important to the source of financial and technical assistance to developing countries around the world.Statement 2 is correct: A major factor influencing a curren- cy’s value is the demand for the goods and services that a country offers.If there’s high global demand for a country’s ex- ports, there will be a higher demand for its currency to purchase those exports.This increased demand will generally push the currency’s value up.On the contrary if demand for a country’s goods and services is low, demand for its currency will be low, putting downward pressure on its value.Statement 3 is correct: Political stability fosters investor confidence, attracting foreign investment and strengthening the currency.Political instability can lead to capital flight and currency depreciation.Statement 4 is incorrect : While the economic potential of a country (e.g., growth prospects, productivity, and inno- vation) can influenc
Practice more Economy PYQs
Attempt a free 10-question quiz or browse the full Economy previous-year-question bank with instant answers and explanations.
📈 Economy PYQs →