Consider the following statements: The price of any currency in the international market is decided by the
- World Bank
- demand for goods/services provided by the country concerned
- stability of the government of the concerned country
- economic potential of the country in question
Which of the statements given above are correct?
Detailed Explanation:
❌ Statement 1 – Incorrect: The World Bank provides loans for development projects; it does not decide or set currency prices in international markets. Currency prices are determined by market forces (demand and supply).
✅ Statement 2 – Correct: High demand for exports (goods/services) requires foreign buyers to purchase the country's currency, increasing its value in foreign exchange markets. This is a Current Account factor.
✅ Statement 3 – Correct: Political stability attracts FDI and FPI (Capital Account flows). Government instability causes capital flight, increasing currency supply and reducing its price.
❌ Statement 4 – Incorrect: While economic potential influences long-term investment sentiment, it is not a direct determinant of daily currency prices compared to immediate trade demand and political stability.
Question 12 of 12 Balance of Payments
Practice PYQ questions from this topic across all years
The balance of payments of a country is a systematic record of
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