Chap 38

Question 1

Foreign exchange rate

Answer 1

Price of one currency in terms of another

Question 2

Fixed exchange rate

Answer 2

An exchange rate whos value is set at a particular level in terms of another currency

Question 3

Floating exchange rate

Answer 3

An exchange rate which can change frequently as it is determined by market forces

Question 4

Revaluation

Answer 4

A rise in the value of fixed exchange rate (Devaluation)

Question 5

Appreciation

Answer 5

A rise in the value of a floating exchange rate (Depreciation)

Question 6

FDI

Answer 6

Foreign Direct Investment:
Setting up production units or buying existing production units in another country

Question 7

Demand for rupees

Answer 7

• Wish to buy Indian goods
• MNCs sending back profits to India
• Paying interest to Indian residents
• Sending back money to relatives
• Hold in reserves
• Expectation the value will rise
• Buy shares, firms, save in banks

Question 8

Supply for rupees

Answer 8

• Indians buying foreign goods
• Foreign MNCS sending money home
• Foreigners sending money home
• Indians buying a foreign share, firms
• Expectation the prise will fall

Question 9

Rate of interest increases

Answer 9

Saving in banks
Demand increases
Value rises

Question 10

Causes for rise in exchange rate

Answer 10

• More export revenue
• Increase in investment
• Speculators demand increases

Question 11

Governments influence

Answer 11

Buying and selling currency
Rate of interest
Measures to increase imports/exports

Question 12

Hot money flow

Answer 12

Money passed around the world to take advantage of differences in exchange and interest rates