Exchange rate is the price of one currency in terms of another currency. The exchange rate depends upon

1. Inflation
2. Interest rates in the country and global majors like USA
3. International commodity prices
4. Political stability
5. Forex reserves with RBI

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Consider the following statements regarding Current Account Deficit (CAD).

1. A current account deficit indicates that a country is importing more than it is exporting.
2. Both government and private payments are included in the calculation of CAD.
3. CAD is always bad for the country and its economy as it drains the country’s forex reserves.

Which of the above statements is/are correct?

Which of the following steps can be taken by the RBI and the government to stabilise the currency markets.

1. Increasing the limit for outbound investment and remittances from India.
2. Using local currency for trade with major trading partners.
3. Liberalisation of FDI norms

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Which of the following developments may not likely reduce the fiscal deficit?

1. Increasing Foreign Direct Investment (FDI)
2. Providing budgetary support to public sector enterprises
3. Waiving off farm loans.
4. Austerity measures should be adopted.

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If a country is consistently running a negative trade balance, which of the following is necessarily implied?

1. The nation is economically a developing country.
2. The nation’s currency is weak as compared to Dollar, which is the international reserve currency.
3. There is little or no demand for the country’s exports in international market.
4. The nation is grappling with high inflation and low growth.

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