Chapter Exam

Chapter-5 Balance of Payments & Foreign Exchange Rate — Online MCQ Test

ECONOMICS · Grade 12 · CBSE(NCERT)

Practice Chapter-5 Balance of Payments & Foreign Exchange Rate with a free chapter-wise online MCQ test for CBSE(NCERT) Grade 12 ECONOMICS. This chapter covers: balance of payments - current account - capital account - foreign exchange rate - flexible exchange rate - fixed exchange rate. AI-generated questions from basic to board-exam level, with instant results and explanations.

Questions

20m

Time Limit

Attempts Left

10 random questions from this chapter (mixed difficulty)
Questions you've seen before won't repeat until the pool resets
You have 20 minutes — exam auto-submits when time is up
Maximum 3 attempts per chapter
Results and explanations shown immediately after submission

New here? Register free — includes 3 free chapter exams.

Chapter-5 Balance of Payments & Foreign Exchange Rate — Important Questions & Answers (FAQ)

Frequently asked questions from CBSE(NCERT) Grade 12 ECONOMICS — Chapter-5 Balance of Payments & Foreign Exchange Rate, with answers and explanations. These are sample questions; the exam has its own separate question set.

What is the Balance of Payments (BOP)?

A. A record of all monetary transactions between a country and the rest of the world ✓
B. The difference between a country's imports and exports
C. Only the record of foreign direct investments
D. A measure of a country's total wealth

Answer: A. A record of all monetary transactions between a country and the rest of the world
BOP is a comprehensive record of all economic transactions including trade, income, and transfers between residents of a country and non-residents.

The Current Account includes:

A. Only merchandise trade
B. Goods, services, primary income, and secondary income ✓
C. Only investment flows
D. Only remittances and transfers

Answer: B. Goods, services, primary income, and secondary income
The Current Account comprises all transactions in goods, services, primary income (like wages), and secondary income (like gifts and transfers).

What happens to exports when the domestic currency depreciates in a flexible exchange rate system?

A. Exports decrease because foreign currency is worth less
B. Exports increase because domestic goods become cheaper for foreigners ✓
C. Exports remain unchanged
D. Exports are determined only by government policy

Answer: B. Exports increase because domestic goods become cheaper for foreigners
Currency depreciation makes domestic goods cheaper in foreign currency terms, increasing their competitiveness and export demand.

Analyze: A country continuously maintains a Current Account Deficit financed by Capital Account Surplus. What are the long-term implications?

A. The country will become richer indefinitely
B. The country accumulates foreign debt and liabilities; eventually returns must be paid ✓
C. The exchange rate will always remain stable
D. Domestic employment will increase automatically

Answer: B. The country accumulates foreign debt and liabilities; eventually returns must be paid
Persistent Current Account Deficit financed by foreign capital means the country is borrowing from abroad; future income must service these liabilities.

Tricky Question: India's Current Account shows a deficit of $50 billion, but BOP is in balance. This implies:

A. The Capital Account must have a surplus of $50 billion ✓
B. Forex reserves must be decreasing by $50 billion
C. India should immediately stop all imports
D. The rupee must depreciate by exactly the deficit amount

Answer: A. The Capital Account must have a surplus of $50 billion
In a balanced BOP, Current Account deficit must be offset by Capital Account surplus; this is definitional and mandatory.