| Consider the following statements: |
| The price of any currency in international market is-decided by the |
| A. World Bank |
| B. demand for goods/services provided by the country concerned |
| C. stability of the government of the concerned country |
| D. economic potential of the country in question of these statements |
A) A, B, C and D are correct
B) B and C are correct
C) C and D are correct
D) A and D are correct
Correct Answer: B
Solution :
[b] The strength of a particular currency in international market is determined by its demand and supply. The Central Banks usually allow the currency to fluctuate within a narrow band, and intervene when this band is being broken. The strength of the currency is nothing but the price of that currency in terms of other currencies. In international markets, this price is decided just like the price of any other commodity in the market, by the relative demand and supply. If there are more buyers wanting to buy the currency relative to the amount of the currency available for supply by the suppliers of that currency, the price of that currency will rise, meaning thereby that the currency will strengthen. If, on the other hand, the supply of the currency exceeds what the buyers are wanting to buy, then the currency will weaken, meaning its price will reduce.
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