Macro

Balance of Payments

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

The Foreign Exchange Market

Let us assume that a single Indian resident wants to visit London on a vacation (an import of tourist services). She will have to pay in pounds for her stay there. She will need to know where to obtain the pounds and at what price, this price is known as the exchange rate. Foreign Exchange Rate (also called Forex Rate) is the price of one currency in terms of another. It links the currencies of different countries and enables comparison of international costs and prices. For example, if we have to pay Rs 50 for $1 then the exchange rate is Rs 50 per dollar. The market in which national currencies are traded for one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorised dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centres , the market itself is world-wide. There is a close and continuous contact between the trading centres and the participants dealing in more than one market.

Which among the following is not a direct participant in the foreign exchange market?

Resident dealers.

Foreign exchange dealers.

Monetary authorities.

Commercial banks.

✅ Correct Option: 1

Option 1: Resident dealers -> These are local individuals or firms who trade in foreign exchange but typically do not have direct access to the interbank market.

Option 2: Foreign exchange dealers -> Authorized dealers who directly trade currencies in the foreign exchange market.

Option 3: Monetary authorities -> Central banks and regulatory bodies that directly participate to implement monetary policy.

Option 4: Commercial banks -> Major direct participants conducting forex transactions for themselves and clients.

Hence, Resident dealers -> Resident dealers are not direct participants in the foreign exchange market. They operate through intermediaries like commercial banks or authorized dealers to access the market. Direct participants include commercial banks, foreign exchange dealers, monetary authorities (central banks), and large financial institutions that have direct access to the interbank foreign exchange market where currencies are traded. -> correct

Question 47

...... in which national currencies are traded for one another.

Question 48

...... links the currencies of different countries and enables comparison of international costs and prices.

Question 49

If a British resident wants to visit India on a vacation he will have to pay in ......

Question 50

If we have to pay Rs 150 for 3 pounds, then the exchange rate is Rs........... per pound.

Which among the following is not a direct participant in the foreign exchange market?

Solution

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