Question : Assertion: Fluctuations in foreign exchange rates impact a country's imports and exports.
Reason: Changes in exchange rates affect the relative prices of goods and services, making imports more expensive and exports more competitive.
Option 1: True for a country with fixed exchange rates.
Option 2: True only for countries with a large trade deficit.
Option 3: True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Option 4: False, as foreign exchange rates have no influence on a country's imports and exports.
Correct Answer: True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Solution : The correct answer is (c) True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Both the assertion and the reason are correct. Fluctuations in foreign exchange rates do impact a country's imports and exports. Changes in exchange rates affect the relative prices of goods and services, which in turn affect the competitiveness of a country's exports and the cost of its imports. When a country's currency appreciates, its exports become relatively more expensive, leading to a potential decrease in exports. Conversely, when a country's currency depreciates, its exports become relatively cheaper, potentially increasing export competitiveness. Similarly, changes in exchange rates affect the cost of imported goods, making them more or less expensive for domestic consumers and businesses. Therefore, exchange rate fluctuations play a significant role in a country's international trade dynamics.
Question : What is the impact of a stronger domestic currency on a country's imports and exports?
Option 1: Increase in imports, decrease in exports
Option 2: Decrease in imports, increase in exports
Option 3: Increase in imports, increase in exports
Option 4: Decrease in imports, decrease in exports
Question : Currency appreciation can negatively impact a country's ________, as it makes the country's exports more expensive.
Option 1: trade balance
Option 2: foreign investment
Option 3: inflation rate
Option 4: unemployment rate
Question : Assertion: Fluctuations in foreign exchange rates can impact a country's balance of trade.
Reason: A change in the exchange rate affects the competitiveness of a country's exports and imports.
Option 1:
Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Question : Assertion: A depreciating exchange rate benefits a country's tourism industry.
Reason: A weaker domestic currency makes traveling to the country more affordable for foreign tourists.
Option 1: True, as a weaker currency reduces the cost of accommodation and travel expenses.
Option 2: True, only if the country has a strong domestic tourism industry.
Option 3: False, as a depreciating exchange rate discourages foreign tourists.
Option 4: False, as exchange rates have no impact on the tourism industry.
Question : When price of a foreign currency falls ______from that foreign country becomes cheaper and ________ increases.
Option 1: Imports, imports
Option 2: Exports, exports
Option 3: Imports, exports
Option 4: Exports, Imports
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