Question

Which of the following does not affect NCO?

Select one:

Real interest rates paid on foreign assets

Real interest rates paid on domestic assets

Government policies

Exchange rate

If a country maintains an under-valued fixed exchange rate system, then which of the following may happen?

Select one:

The country will earn a lot of foreign currency at the expense of its trading partner

The country will have currency crisis and a sudden collapse in the value of its currency

The country's export will increase

All of the above

If a country maintains an over-valued fixed exchange rate system, then which of the following may happen?

Select one:

The country will earn a lot of foreign currency at the expense of its trading partner

The country will have currency crisis and a sudden collapse in the value of its currency

The country's export will increase

All of the above

Answer 1

1.d.NCO is not affected by exchange rate

Because change in exchange rate may cause change in demand for currency of a country but it doesnot impact the amount of capital available in the market.

2. c.The country's export will increase

As there is under valuation of the domestic currency, that is the case of devaluation, this will lead to the exports being cheaper for the foreign countries, hence causing an increase in exports.

3.a. The country will earn a lot of foreign currency at the expense of it's trading partner.

As overvaluation causes the foreign currency to be devalued , making it cheaper as compared to domestic currency. Hece domestic currency can earn foreign currency , because of it's devaluation , making it cheaper.