Macro

Balance of Payments

Medium

Which of the following is not a merit of the flexible exchange rate system?

Exchange rates are prone to speculative attack on a currency.

Movements in the exchange rate automatically take care of the surpluses and deficits in the BoP.

Countries gain independence in conducting their monetary policies.

Large stocks of foreign exchange reserves are not required.

✅ Correct Option: 1

Option 1 -> This describes a disadvantage (speculative attacks), not a merit of flexible exchange rates.

Option 2 -> This is a merit - automatic BoP adjustment through exchange rate movements.

Option 3 -> This is a merit - monetary policy independence is a key advantage.

Option 4 -> This is a merit - flexible systems don't require large forex reserves.

Hence, Option 1: Exchange rates are prone to speculative attack on a currency. -> This is NOT a merit but rather a demerit of the flexible exchange rate system. Under flexible exchange rates, currencies can be vulnerable to speculative attacks and excessive volatility, which can destabilize the economy. The other three options are all genuine merits: automatic BoP adjustment, monetary policy independence, and reduced need for forex reserves are all advantages of flexible exchange rate systems. -> correct

2025: 27 May Shift 2

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

2025: 28 May Shift 1

Match the following:

List -I	List -II
(A) Direct Investment	(I) Bilateral Loans
(B) Portfolio Investment	(II) Equity Capital
(C) External Borrowing	(III) Off Shore Funds
(D) External Assistance	(IV) Short Term Debt

Which of the following combination is a correct match of the above?

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)
(A) - (I), (B) - (II), (C) - (III), (D) - (IV)
(A) - (II), (B) - (III), (C) - (IV), (D) - (I)
(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

2026: 13 May Shift 2

Arrange the following statements in correct order in the context of flexible exchange rate system.

(A) When income increases, consumer spending increases.

(B) Shift in demand curve for foreign exchange towards right.

(D) Depreciation of domestic currency with respect to foreign currency.

Choose the correct answer from the options given below:

2025: 13 May Shift 1

The difference between the value of exports and the value of imports of goods of a country in a given period of time is known as by what name?

2026: 23 May Shift 1

Which one of the following statements is correct about the balance of payment (BOP)?

2024: 16 May

Under flexible exchange rate, when the price of domestic currency in terms of foreign currency increases, it is called :

Which of the following is not a merit of the flexible exchange rate system?

Solution

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