GK Quiz on Foreign Exchange Reserves (FOREX)

The General Knowledge Quiz or the 10 Multiple Choice Questions listed below are helpful to various candidates preparing for Bank PO, UPSC Civil Services and SSC, NDA etc exams. Take a look and solve the questions based on FOREX or foreign exchange reserves in India
Created On: Jul 16, 2021 04:00 IST
Modified On: Jul 16, 2021 16:22 IST
GK Quiz on FOREX
GK Quiz on FOREX

Take a look at the GK Quiz below consisting of 0 MCQs on Foreign Exchange Reserve in India. The questions would help improve the candidates knowledge on the subject. 

1. Foreign Exchange Reserves are held in

  1. Domestic Currency
  2. Foreign Currency
  3. Both a and b
  4. Only gold

Ans. b

Explanation: Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies.

2. Which country has the largest foreign currency reserve?

  1. UK
  2. China
  3. Japan
  4. India

Ans. b

Explanation: Maximum foreign exchange reserves are held in U.S. dollars and China is the largest foreign currency reserve holder in the world.

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3. Foreign exchange reserve cannot include

  1. Banknotes
  2. Deposits
  3. Bonds
  4. None of the above 

Ans. d

Explanation: Foreign exchange reserves can include banknotes, deposits, bonds, treasury bills and other government securities. 

4. Where are the Foreign exchange reserves held in India?

  1. Finance Ministry
  2. Central Treasury
  3. Reserve Bank of India
  4. All the nationalised banks 

Ans. c

Explanation: The foreign exchange reserves are held by the Reserve Bank of India

5. What acts as the first defense for India against the economic slowdown?

  1. Foreign Exchange Reserves
  2. Securities
  3. Gold
  4. Domestic Currency

Ans. a

Explanation: It is advisable to keep foreign reserves in international currency so that the market shocks could be avoided and absorbed. 

6. How often does the RBI publish a report on management of FOREX?

  1. 6 months
  2. 3 months 
  3. 1 year
  4. Every month

Ans. a

Explanation: RBI submits a half yearly report on management of FOREX reserves

7. What is true about the exchange rate system of FOREX

i) It is either fixed against gold or some currency in fixed system

ii) In clean floating system, central authority checks fluctuations created by market forces on exchange rate

  1. Only i
  2. Only ii
  3. Both i and ii
  4. None of the above 

Ans. a

Explanation: In the Fixed system the government maintains their exchange rate fixed either against gold or some other currency. Under the Clean floating system, exchange rate is freely determined by the market forces of demand and supply of foreign exchange with no interference by the central authority.

8. What are the benefits of following the fixed exchange rate system?

  1. Minimal exchange rate fluctuations
  2. Reduction in volatility and fluctuations in prices
  3. Imposition of discipline on the monetary authority
  4. All of the above 

Ans. d

Explanation: The benefits of  a fixed exchange rate system may also include encouragement of international trade and less speculation in the currency market as additional benefits. 

9. What is the nominal exchange rate?

  1. Number of units of domestic currency, one must give up to get an unit of foreign currency
  2. Price of foreign currency in terms of domestic currency
  3. Ratio of foreign to domestic prices, measured in the same currency
  4. Both a and b

Ans. d

Explanation: Nominal exchange rate is the total number of units of domestic currency, anyone must give up to get one unit of foreign currency. Simply it refers to the price of foreign currency in terms of domestic currency.

10. What is Devaluation of currency?

i) When the value of domestic currency decreases in relation to the value of foreign currency (flexible system)

ii) Fall in the value of domestic currency in relation to foreign currency as planned by the Central Bank (Fixed system)

  1. Only i
  2. Only ii
  3. Both i and ii
  4. None of the above 

Ans. b

Explanation: Devaluation is the fall in the value of domestic currency compared to foreign currency as planned by the Central Bank when exchange rate is not determined by forces of demand and supply under a fixed exchange rate system.

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