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Indian Economic Policy

Notes Self-Assessment
1. Choose the correct options:
(i) If a citizen could buy £25,000 for $100,000, the rate of exchange for the pound would be
(a) $40 (b) $25
(c)$4
(ii) Canadian residents demand foreign currencies to
(a) produce goods and services exported to foreign countries
(b) pay for goods and services imported from foreign countries
(c) receive interest payments on investments in Canada
(d) have foreigners make real and financial investments in Canada
(iii) A nation's balance of trade is equal to its exports less its imports of
(a) goods (b) goods and services
(c) financial assets (d) official reserves
(iv) A nation's balance on the current account is equal to its exports less its imports of
(a) goods and services
(b) goods and services, plus Canadian purchases of assets abroad
(c) goods and services, plus net investment income and net transfers
(c) goods and services, minus foreign purchases of assets in Canada
(v) The net investment income of Canada in its international balance of payment is the
(a) interest income it receives from foreign residents
(b) dividends it receives from foreign residents
(c) excess of interest and dividends it receives from foreign residents over what it paid to
them
(d) excess of public and private transfer payments it receives from foreign residents over
what it paid to them
(vi) A nation may be able to correct or eliminate a persistent (long-term) balance of payments
deficit by
(a) lowering the barriers on imported goods
(b) reducing the international value of its currency
(c) expanding its national income
(d) reducing its official reserves
(vii) If exchange rates float freely, the exchange rate for any currency is determined by the
(a) demand for it (b) supply of it
(c) demand for and the supply of it (d) official reserves that back it
(viii) If a nation had a balance of payments surplus and exchange rates floated freely, the foreign
exchange rate for its currency would
(a) rise, its exports would increase, and its imports would decrease
(b) rise, its exports would decrease, and its imports would increase
(c) fall, its exports would increase, and its imports would decrease
(d) fall, its exports would decrease, and its imports would increase
22.3 Summary

• It is generally agreed that the status of a country’s economy depends in some measure upon the
character of its commercial dealings with other countries. India cannot afford to remain insular
in international trade and commerce. Imports and exports are vital for economic growth.

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