UNIT-X

BALANCE OF PAYMENTS

► FOREN EXCHANGE
Exchange of national currency with foreign currency is known as Foreign Exchange. In other words ,
Foreign Exchange refers to the sum total of the stocks of foreign currency including securities and bonds
issued by foreign government and corporate .

► FOREIGN EXCHANGE MARKET

Foreign Exchange Market is the market, where national currencies are traded for foreign currency. The
Foreign Exchange Market works through financial institutions and operates several levels .It assists
international trade and investments by enabling currency conversion .

» Functions of Foreign Exchange Market

(i) Foreign exchange market transfer the purchasing power between countries involved in
transaction.
(ii) It is also helpful to provied Credit Chanels for foreign trade.
(iii) It implies protection against the risk related to variations in foreign exchange rate.

► FOREIGN EXCHANGE RATE

Foreign Exchange Rate refers to the rate at which one unit of currency of a country can be exchanged for
the number of units of currency of another country . In other words, it is the price paid in domestic currency
in order to get one unit of foreign currency. According to SAYERS — “The price of currencies in terms of
each other are called Foreign Exchange Rate .”

e.g. If one (1) US dollar is exchanged for ₹ 60 of India ,

then the rate of exchange is $ 1 = ₹ 60 or, ₹ 1 = 1/ 6o $ = 0.0166 Cents .

It represents the external purchasing of a currency . It is the rate at which exports and
imports of a nation are valued at a given point of time .

# EXPORTS : Exports are the goods and services produced in one country and purchased by
residents of another country .

# IMPORTS : Imports are the goods and services bought by a country’s residents that are produced in
a foreign country .
► TYPES OF EXCHANGE RATE
(1) FIXED EXCHANGE RATE :
A rate announced by monetary authorities ( In India previously RBI ) on daily or monthly basis is known
as Fixed Exchange Rate. It generally does not change or the change can take place within a fixed limit only.

** Gold Standard System of Exchange Rate

In this system gold was taken as the common unit of parity between currencies in circulation of
different countries . Each country was to define value of its currency in gold

.e.g. In UK , £ 1 = 4 gms. Of gold , & In US , $1 = 1 gms Of gold

Then, 1 UK £ = 4 US $ . i.e. Four(4) dollars ($) would be exchanged for one (1) UK pounds (£ ) .

** Bretton Woods System of Exchange Rate

OR ; Adjustable Peg System of Exchange Rate

According to this system :

(i) Different currencies were pegged ( related to ) one currency , i.e. US dollar .
(ii) US dollar was assigned gold value of fixed rate .
(iii) Gold continued to be the ultimate unit of parity between any two currencies .
(iv) Adjustment of the parity value of the currency was possible but only if allowed by IMF .

» MERITS [ Argument in favour ] of Fixed Exchange Rate

(i) Promotes world trade ; because fixed exchange rate prevents risk and uncertainty in
transaction .
(ii) It attracts foreign capital investment , which promote economic growth .
(iii) For foreign trade dominated countries , like UK ,Denmark ,etc , fixed exchange rate is more
essential .
(iv) Fixed exchange rate ensures internal price stability which promotes capital formation.
(v) Fixed exchange rate is more essential for developing countries for carrying out planned
development efforts .

» DEMERITS [ Argument against ] of Fixed Exchange Rate

(i) Today the smooth functioning of this system is not possible .
(ii) This is responsible for internal price instability as it requires a country .
(iii) It ignores national interests ( National Income ,Price level , etc.) for gaining international
benefits .
(iv) For maintaining fixed exchange rate various types of controls have to be applied on various
sectors.
(v) It does not reflect cost-price relationship ,because different countries follow different economic
polices .
 (vi) It does not encourage Venture Capital .
(vii) Government has to maintain 100 % gold reserve .
(viii) There is the possibility to under or over valuation of the currency .

(2) FLEXIBLE EXCHANGE RATE :

Flexible Rate is determined by the forces of demand and supply in the international
exchange market . It is freely and automatically determined by the forces of demand and supply . Such a
rate fluctuates violently even in a single day . Higher demand will rise the Foreign exchange rate and higher
supply will fall the Foreign exchange rate .

R = f ( D ,S )
Where , R = Exchange Rate .

D = Demand for various currencies in the international market .

S = Supply for various currencies in the international market .

» MERITS :
(i) The problem of international liquidity is automatically removed
(ii) Promotes economic development and employment .
(iii) It does not need any outside interference .
(iv) There is a free movement of capital between countries which helps in promoting International
Trade .
(v) It automatically removes disequilibrium in the balance of payments through depreciation or
appreciation of the currencies .
(vi) It ensures optimum use of resources in the economy .
(vii) There is no requirement of government to hold 100 % gold reserve .
(viii) It encourages Venture Capital .

» DEMERITS :
(i) Frequent fluctuations in exchange rates create instability and uncertainty about the
exact amount of receipts and payments in foreign exchange transactions . It reduces the value of foreign
trade and foreign investment .

( ii ) Due to fluctuations in exchange rates , the prices of imported and exported goods undergo a change ,
which destabilise the economy of the country .

(3) SPOT RATE :

It is the rate , at which foreign exchange is made available on the spot . This is also known as CURRENT
RATE / CABLE RATE / TELIGRAPH RATE . This rate is quoted differently for the buyers and sellers .

e.g. , $ 1= ₹ 68 for buyers and $ 1= ₹ 68 .10 for sellers .

(4) FORWARD RATE : It is the rate at which future contract for foreign currency is made
.This rate is settled now but the actual transaction of foreign exchange take place in future .

(5) MULTIPLE RATE : It refers to a system in which a country adopts more than one rate of
exchange its currency .

► FACTORS DETERMINING EXCHANGE RATE

Some of the important factors which causes fluctuations in the rate of exchange are given :

( 1 ) CHANGE IN TRADE :The demand and supply of foreign exchange is influenced by changes in
exports and imports . If exports exceed imports, demand for domestic currency increases so that rate of
exchange moves in its favour . But, if imports exceed exports , the demand for foreign currency increases
and the rate of exchange will move against the country .

( 2 ) CAPITAL MOVEMENT :Capital movement influence the exchange rate . e.g. if there is a capital
flow from USA for investment in India , the demand for Indian currency will increase in foreign exchange
market . As a result , the rate of exchange of Indian rupee in terms of US dollar will rise .

( 3 ) SALE AND PURCHASES OF SECURITIES ; The stock exchange transactions influence the
demand for foreign exchange ,and thereby ,the exchange rate .

( 4 ) BANK RATE : If bank rate is raised ,more funds will flow into the country from abroad to earn
high interest . As a result supply of foreign currency increases and the rate of exchange moves against the
foreign exchange and vice-versa .

( 5 ) POLTICAL CONDITIONS : If there is political stability , strong and efficient administration

foreign investment increases in the country .The demand for domestic currency will increase and the
exchange rate will move in favour of the country .

► Determination Of Exchange Rate

OR,
DEMAND-SUPPLY THEORY OF EXCHANGE RATE

Exchange Rate is that rate of one unit of foreign currency expressed in terms of domestic currency. In
foreign exchange market, exchange rate is determined by relative forces of demand and supply.
Demand for Foreign Exchange
There is an inverse relationship between the demand for foreign currency and the exchange rate ( Price of
foreign exchange ). i.e. If exchange rate is low, demand for foreign currency will be more and vice-versa.

Here, DD is downward sloping Y D

demand curve, who shows that greater R

amount of foreign exchange is demanded

at lower rate of exchange. When rate of R1

exchange falls from R to R1, demand for D

foreign exchange increases from Q to Q1 O Q Q1 X

and vice-versa . Demand for Foreign Exchange

Supply of Foreign Exchange

There is direct relationship between supply of S

foreign exchange and rate of foreign exchange . R1

Here , a upward rising

Supply curve “SS” shows That , when rate of exchange R

Increases from R to R1 , supply of foreign exchange is S

also Increase from Q to Q1 and vice-versa . O Q Q1 X

Supply of Foreign Exchange

Equilibrium Rate Exchange : - Y

The equilibrium rate of exchange is D S

determined at the point where demand
for foreign exchange becomes equal to the
supply of foreign exchange . R E
It is clear from the figure ,
Equilibrium exchange rate Is determined at
the point E , where demand for foreign S D
exchange (DD ) and
O Q X
Quantity of Foreign Exchange
supply of foreign exchange ( SS ) are equal . Equilibrium rate of foreign exchange is “R”
and equilibrium demand and supply of foreign exchange is “ Q” .

► Sources / Determinants of Demand [ Outflow ] for Foreign Exchange :-

Demand for foreign exchange is required to achieve the following objectives :-

(i) Purchase of goods & services from other countries .

( ii ) Investment ( by country ) in the rest of the world .
(iii ) Payment of international loan and interest .
( iv ) Purchase of financial assets from abroad .
(v ) Direct purchases by the residents in the foreign market .
( vi ) Tourism.
( vii ) Remittances by foreigners working in country .

► Sources / Determinants of Supply [ Inflow ] of Foreign Exchange :-

Supply of foreign exchange depends upon the following sources :--

(i) Purchase of goods & services by foreigners from domestic market

( ii ) Investment by foreigners and foreign companies in the domestic market .
( iii ) Recovery of loans , advanced and interest there on
( iv ) Direct purchases by the non-residents in the domestic market .
(v) Purchase of financial assets by foreigners in country .
( vii ) Foreign Tourists spend in foreign exchange in country .
( viii ) Remittances by residents working in abroad .

► Distinction between Fixed and Flexible Exchange Rate

Fixed Exchange Rate
1. It is decided and declared by the
government and it is kept stable .
2. In this system, the central bank
becomes ready to buy or sell its
currencies at a fixed rate .
3. No fluctuation takes place .
Flexible Exchange Rate
1. It is determined by demand and supply
forces in international market
2. Exchange rate is freely dependent on
the working of foreign exchange
market and the central bank has nothing
to do with it .
3. Fluctuations appear .

► DEVALUATION OF CURRENCY :-
Devaluation of currency is the fall in the value of domestic currency in relation to
foreign currency as planned by the government . In this situation, exports are encouraged .
► DEPRECIATION OF CURRENCY :-
Depreciation of currency is the fall in the value of domestic currency in relation
to foreign currency in a situation when exchange rate is determined by the forces of demand and supply in
the international market . In this situation, exports are encouraged .

► APPRECIATION OF DOMESTIC CURRENCY

Or, DEPRECIATION OF FOREIGN CURRENCY :-

Appreciation of Domestic Currency refers to increase in the value ( external purchasing power ) of
domestic currency in terms of foreign currency. e.g. If $1 = ₹ 60 , and now
exchange rate fall to $1 = ₹ 50 .

»» Causes for fall in Exchange Rate :-

( i ) Fall in demand of foreign currency .

( ii ) Rise in supply of foreign currency .
»» Effects on Foreign Trade :-

( i ) It encourages imports .
( ii ) It discourages exports .

► APPRECIATION OF FOREIGN CURRENCY

Or, DEPRECIATION OF DOMESTIC CURRENCY :-

Appreciation of Domestic Currency refers to decrease in the value ( external purchasing power ) of
domestic currency in terms of foreign currency. e.g. If $1 = ₹ 60 , and now
exchange rate fall to $1 = ₹ 70 .

»» Causes for rise in Exchange Rate :-

( i ) Increase in demand for foreign currency .

( ii ) Decrease in supply of foreign currency .
»» Effects on Foreign Trade :-

( i ) It encourages exports .
( ii ) It discourages imports .

► CHANGE IN EXCHANGE RATE

Or, Effects of change in demand and supply on Exchange Rate

Exchange Rate is determined by demand and supply forces of
foreign exchange . Hence , change in demand and supply conditions bring change in
exchange rate .
[ 1] When Demand for Foreign Exchange increases :-

In this diagram , ‘DD’ is demand curve , Y D1 S

‘SS’ is supply curve , ‘E’ is equilibrium point D
and ‘R’ is equilibrium exchange rate . R1 E1
Due to increase in demand ‘D1 D1’ is new
demand curve and ‘E1’ is new equilibrium R E
point , causes exchange rate increases from D1
‘R’ to ‘R1’ . S
It shows Depreciation of Domestic Currency . D
O Q Q1 X

Quantity of Foreign Exchange

[ 2] When Demand for Foreign Exchange decreases :-

In this diagram , ‘DD’ is demand curve , Y D S

‘SS’ is supply curve , ‘E’ is equilibrium point D1
and ‘R’ is equilibrium exchange rate . R E
Due to decrease in demand ‘D1 D1’ is new
demand curve and ‘E1’ is new equilibrium R1 E1
point , causes exchange rate decreases from D
‘R’ to ‘R1’ . S
It shows Appreciation of Domestic Currency . D1

O Q1 Q X
Quantity of Foreign Exchange

[ 3] When Supply of Foreign Exchange decreases :-

In this diagram , ‘DD’ is demand curve , Y D S1

‘SS’ is supply curve , ‘E’ is equilibrium point
and ‘R’ is equilibrium exchange rate .
Due to decrease in supply ‘S1S1’ is new R1 E1 S
Supply curve and ‘E1’ is new equilibrium
point , causes exchange rate increases from R E
‘R’ to ‘R1’ . S1
D
It shows Depreciation of Domestic Currency . S
O Q1 Q X
Quantity of Foreign Exchange
[ 4 ] When Supply of Foreign Exchange increases :-

In this diagram , ‘DD’ is demand curve , Y D S

‘SS’ is supply curve , ‘E’ is equilibrium point
and ‘R’ is equilibrium exchange rate .
Due to increase in supply ‘S1S1’ is new R E S1
Supply curve and ‘E1’ is new equilibrium
point , causes exchange rate decreases from E1
‘R’ to ‘R1’ . R1 S
D
It shows Appreciation of Domestic Currency . S1
O Q Q1 X

Quantity of Foreign Exchange

► BALANCE OF TRADE ( BOT )

Balance of Trade means the difference between Exports and Imports of visible material goods . It is the
part of the nation`s Balance of Payments.`

BOT = Exports of goods - Imports of goods

Exports are entered as credit items in the balance of payments accounts as it corresponds to inflow of
foreign exchange .

Imports are entered as debit items in the balance of payments accounts as it corresponds to outflow of
foreign exchange .

TYPES OF BALANCE OF TRADE :

( 1 ) Favourable Balance of Trade :-- The situation where the value of visible exports
exceeds the value of visible imports is termed as Favourable Balance of Trade .[ Exports >Imports ]

( 2 ) Unfavourable Balance of Trade : -- The situation where the value of visible Imports exceeds
the value of visible Exports is termed as Unfavourable Balance of Trade .[ Imports > Exports ]

( 3 ) Equilibrium Balance of Trade :-- The situation where the value of visible exports is equal to
the value of visible imports is termed as Equilibrium Balance of Trade .[ Exports = Imports ]

► BALANCE OF PAYMENT ( BOP )

Balance of payment is the compliment statement of the country`s receipts and payments in foreign
exchange . According to Kindleberger --“The Balance of Payment of a country is a systematic record of
all economic transactions between the residents of the reporting country and residents of foreign
countries during a period of time”.
 Balance of Payment includes three types of economic transactions (items):-

1) VISIBLE ITEMS :- It includes import and export of all types physical goods.
2) INVISIABLE ITEMS :- It includes all types of services ,like shipping , banking ,insurance , etc.
3) CAPTICAL TRANSFERS :- It includes capital receipts( borrowing or sale of assets ) and
capital payments ( Repayments of loans or purchase of assets) .

BALANCE OF PAYMENT ACCOUNTING

Balance of Payment Account are done on the basis of credit or receipt and debit or payment in dual
entry system. After filling all the entries in the records, total credit and debit become equal to each other
because both the sides are equal in transactions and recorded in opposite direction. That is why , BOP is
always in equilibrium.

 FEATURES / CHARACTERISTICS OF BOP

Main characteristics of BOP are :

1) It is a systematic records of payments and receipts of a country related to its import and export
with other country.
2) It is an account of a fixed period of time.
3) It includes all types of visible items, invisible items and capital transfers.
4) Payments and receipts are accounted on the basis of double entry system.
5) Double entry system itself keeps balance of payments as balanced.

** TYPES OF BALANCE OF PAYMENTS

1) Favourable Balance of Payments :- Excess of goods and services exported plus capital
transferred to abroad over the goods and services imported and capital transfers from abroad is
known as Favourable Balance of Payments . [ Exports > Imports ]
2) Unfavourable Balance of Payments :- Excess of goods and services imported plus
capital transfers from abroad over the goods and services to abroad exported plus capital transfers is
known as Unfavourable Balance of Payments . [ Exports < Imports ]

** DIFFERENCE BETWEEN “BOP” & “BOT”

BALANCE OF PAYMENT BALANCE OF TRADE
1. It includes all types of visible & 1. It is concerned with the trade of visible
invisible items including capital items.
transformation. 2. It is a narrow concept.
2. It is a wider concept. 3. It is not a true indicator of economic
3. It is a true indicator of economy. performance of a country.
4. It is always balanced. 4. It can be favourable or unfavourable for
a country.
► ADVERSE BALANCE OF PAYMENT
Or UNFAVOURABLE BALANCE OF PAYMENT
The Balance of Payments can to be said to be in equilibrium when the receipts of the country are equal to its
payments on account of its transactions with other countries . If a country`s receipts from foreigners fall sort
of its payments to foreigners, the balance of payments is said to the unfavourable or advers.

When we speak of disequilibrium or adverse in the balance of payments, we refer not to the balance of
payments as a whole, but to the balance in certain categories or sections of credits and debits . A position of
disequilibrium in the balance of payments of a country exists when the demand for foreign exchange
exceeds its supply or vice versa .

 REASONS / CAUSES :-
Outflow of foreign exchange is more than inflow ( i.e. Deficit ) and inflow is more than
outflow ( i.e. surplus ),this situation is called Disequilibrium in Balance of Payment. It caused by following
factors :-

1) Large scale development expenditure by the Govt. that may large scale imports in the country.
2) Due to high domestic prices, exports are discouraged.
3) New sources of supply in other countries discovery of new competitive goods bring decrease in
exports of country.
4) Imports decline due to import substitutes to existing products.
5) Business Cycle occur in the form of Recession, Depression, Recovery and Boom. A period of
Boom may witness large scale exports of a country.
6) Natural causes like Flood, Famine, Drought, etc., imbalances in BOP.
7) If due to political tension or war, defence expenditure increases, then BOP is in disequilibrium.
8) International relations of a country affects the BOP of a country.
9) Political Instability is adversely affects the BOP of a country.
10) Change in taste, preferences and fashion of people affects Propensity to Consume, Exports and
Imports. It thereby affects BOP of a country.

# MEASURES TO CORRECT DISEQUILIBRIUM IN BOP :-

1) The disequilibrium in the BOP may automatically disappear after sometimes when certain forces
come into operation in the economy.
2) TRADE MEASURES :- The trade measure could be undertaken by country are following –
A) Encouragement to exports.
B) Reduction in export duties.
C) Subsidies to export industries.
D) Reduction in imports.
E) Import quota system
F) The Govt. prohibits altogether the imports of certain goods which are
considered to be non-essential from the national point of view.
 3) MONETARY MEASURES : - The following monetary measures taken by the Govt. to deal
with the adverse BOP ---
a) Currency Devaluation :- The Govt. may resort to the devaluation of its currency to eliminate or
to reduce the deficit in the BOP. Devaluation always encourages exports by cheapening them in
foreign countries. On the country , it has the effect of discouraging imports by making them more
expensive within the country .
b) Money Contraction :- The govt. may resort to currency contraction to remove the
disequilibrium in the balance of payments .The prices of goods and services automatically go down.
But imports are discouraged as the fall of the internal price-level.
c) Exchange Control :- The Govt. utilizes the exchange control system to effect a cut in the
volume of imports. Under this system, the exporters have to surrender their earnings of foreign
exchange to the Govt. in exchange for domestic currency.
d) Foreign Loans :- The Govt. can secure loans from foreign banks or foreign Governments. Since
the repayment of these loans is spread over a long period, this helps the Govt. to remove deficit in
the BOP.
e) Foreign Investment :- The Govt. induces the foreigners to make investment in the country by
offering them all sorts of incentives and concessions.
f) Incentives to Foreign Tourists :-This increases the foreign exchange earnings of the country
with the help of which deficit in the BOP can be reduces.

** BALANCE OF PAYMENTS IS ALWAYS BALANCEED

Balance of Payments of a country is always balanced because entries in Balance of
Payments accounts are done on the basis of Credit (Receipts) and Debits (Payments) in dual entry
system. After filling all the entries in the record, total credit and debits become equal to each other
because both the sides are equal in transactions and recorded in opposite direction. That BOP is always
balanced.

** FORMS / ACCOUNTS OF BOP

( 1 ) CURRENT ACCOUNTS :- Balance of Payments of a current account is a statement of actual
receipts and payment of all transactions relating to trade in goods ( visible items) , services ( invisible items )
and unilateral transfers. Only real behaviours are included in current account .

( 2 ) CAPITAL ACCOUNTS :- Balance of Payments on capital account of a country consists of its

transactions in financial assets in the form of short-term and long-term lending or borrowing and private
and Govt. investments . It shows international flow of loans and investments and represents a change in the
country’s foreign assets and liabilities .
** DIFFERENCE BETWEEN “CURRENT ACCOUNT” AND “CAPITAL ACCOUNT”
CURRENT ACCOUNT
1) The current account deals with payment
and receipts for currently produced
goods and services .
2) Transactions in current account take
place in the form of flow .
3) It change in current income of the
country .
4) It affects the National Income directly.
** COMPONENTS / ITEMS OF CURRENT ACCOUNT
RECEIPT / CREDIT [ + Ve ]
1. Exports of goods & services.
2. Income from foreign investment.
3. Gifts and donations received from
abroad.
4. Income from foreign Govt.’s
expenditure.
5. Receipts from transportation services.
6. Expenditure by foreign tourists.
7. Mixed expenditure by foreigners.
8. Receipts from interest on capital.
** COMPONENTS / ITEMS OF CAPITAL ACCOUNT
RECEIPT / CREDIT [ + Ve ]
1. Capital receipts.
2. Inflow of banking capital, except
central bank.
3. Reserves and monetary gold inflow.
4. Loans received by the Govt.
5. Foreign private loans.
6. International sale of gold.
CAPITAL ACCOUNT
1) The capital account deals with all such
transactions between residents of a
country and rest of the world.
2) Transaction in capital account take
place as stock .
3) It affect capital stock of the country .
4) It does not direct affect on the National
Income.
PAYMENT / DEBITS [ - Ve ]
1. Imports of goods & services.
2. Income to foreigners from investment
made at home.
3. Payment of gifts & donations to the
foreigners.
4. Govt. expenditure in foreign countries.
5. Payment of transportation services.
6. Expenditure by country’s tourist in
abroad.
7. Mixed expenditure in foreign countries.
8. Payment for interest on capital.
PAYMENT / DEBITS [ - Ve ]
1. Capital payments.
2. Outflow of banking capital, except
central bank.
3. Reserves and monetary gold transfer
payments.
4. Loans repayment by the Govt.
5. Repayment of private loans.
6. Purchase of gold from international
market.
 BALANCE OF PAYMENT

1. Which items are included in Balance of Payments ? [ 2013 , ]

(A) Visible Items (B) Invisible Items
(C) Capital Transfer (D) All of these
2. Foreign Exchange Rate is determined by : [ 2016 , 19A , ]
(A) Government (B) Barganing
(C) World Bank (D) Demand and Supply Forces
3. Which one is the invisible item of Balance of Payments ? [ 2019 , ]
(A) Banking (B) Shipping
(C) Communication (D) All of these
4. Which one is a kind of Exchange Rate :
(A) Fixed Exchange Rate (B) Variable Exchange Rate
(C) Both (A)and (B) (D) Non of the Above
5. Balance of Trade means :
(A) Capital Transaction (B) Import & Export of Goods
(C) Total Debit and Credit (D) All of the Above
6. Which one is the visible item of Balance of Payments ?
(A) Machine (B) Cloth (C) Cement (D) All of these
7. Which one of the item of Current Account ?
(A) Import of Visible Items (B) Export of Visible Items
(C) Expenses of Tourists (D) All of these
8. Which one of the item of Capital Account ?
(A) Government Transaction ( B) Private Transaction
(C) Foreign Direct Investment (D) All of these
9. The components of Balance of Payment :
(A) Current Account (B) Capital Account
(C) Both (A) and (B) (D) Non of the Above

# What is meant by disequilibrium in Balance of Payment .

# Define Balance of Payment . # What is meant by disequilibrium in Balance of #
# Define Balance of Trade . # When will Balance of Trade shows a deficit ?
# Define Visible Trade . # When will Balance of Trade shows a surplus ?
(Balance of Trade)
# What is Foreign Exchange Rate ? # What is Foreign Exchange Market ?
# What is Spot Rate ? # What is Forward Rate ?
# What is Fixed Exchange Rate ? # What is Flexible Exchange Rate ?
# What is Multiple Rate ? # What is Open Economy ?
# What is Closed Economy ? # What are Imports and Exports ?
 1. What is Exchange Rate ? [ 2006 (compt)], [ 2012 ], [ 2013 (Sc.)], [ 2015 (Arts)],
[ 2016 (Sc.)], [ 2017 (Arts)], [ 2018Compt.(Arts & Sc)],
[ 2019 Compt.(Arts & Sc)], [ 2020 (Arts)],
2. Explain the meaning of Foreign Exchange . [ 2010 (compt)], [ 2016 (Arts)]
3. How is Rate of Exchange determined ? [ 2006 (compt)], [ 2013 (Sc.)], [ 2016 (Sc.)],
[ 2018Compt.(Arts)], [ 2019 Compt.(Sc)], [ 2020 (Arts)],
4. Explain the types of Exchange Rate . [ 2018 Compt.(Sc)],
5. What is Fixed Exchange Rate ? [ 2017 (Sc.)],
6. Explain Flexible Exchange Rate . [ 2016 (Sc.)], [ 2020 (Arts)],
7. How is Fixed Exchange Rate determined ? [ 2010 (compt)],
8. Describe the merits and demerits of Fixed Exchange Rate . [ 2018 (Arts)],
9. Describe the merits and demerits of Flexible Exchange Rate . [ 2009 (Sc.)], [ 2018 (Arts)],
10. Explain the Favourable and Unfavourable Exchange Rate . [ 2012 ],
11. What is Balance Of Trade ( BOT ). [ 2009 (Sc.)], [ 2017 (Sc.)], [ 2019 (Arts)],
12. What is Balance Of Payment ( BOP ) ? [ 2006 (Arts)], [ 2008 (Sc.)], [ 2009 (Arts)],
[ 2011 (Sc.)], [ 2015 (Arts)], [ 2016 (Arts)], [ 2018 (Sc.)],
[ 2018 (Arts)], [ 2020 (Arts)], [ 2020 (Sc.)],
13. What are the difference between ‘Balance Of Trade’ and ‘Balance Of Payment’?
[ 2006 (Arts)], [ 2007 (Sc.)], [ 2020 (Arts)], [ 2020 (Sc.)],
14. State the components of Balance Of Payment . [ 2018 (Arts)],
15. What is disequilibrium in the Balance Of Payment . [ 2016 (Arts)], [ 2017 (Sc.)], [ 2019 (Sc.)],
16. What are the causes of Adverse Balance Of Payment ? [ 2010 (Sc.)], [ 2016 (Arts)],
[ 2017 (Sc.)] , [ 2019 (Sc.)],
17. Describe any four methods to correct Adverse Balance of Payment. [ 2009 (Sc.)],
18. “ Balance of Payment is always in equilibrium .” [ 2010 Compt.(Arts)], [ 2014 (Arts)],
[ 2017 (Arts)], [ 2019 Compt.(Sc)],
19. Distinguish between ‘Current Account’ and ‘Capital Account’ of BOP Account. [ 2013 (Sc.)],
20. What are Exports and Imports . [ 2019 (Arts)],

2020

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