Question

1. Read the passage given below:- (5 marks)

Donald Trump’s surprise win in the U.S. presidential elections has lent the dollar new wings.

It has soared against most currencies, including the rupee, on the expectation that his

economic policies will spur growth and inflation in the world’s largest economy. The

prospect of the Federal Reserve raising interest rates provided an up draught that helped

the dollar extend a record appreciating streak against the euro last week and pushed the

rupee past 68 to a dollar. In Congressional testimony last week, Fed Chair Janet Yellen

signaled that the central bank was close to a decision to raise rates again. Some economists

predict U.S. GDP growth could see appreciable acceleration in 2017 — with one projection

positing even a doubling of the pace by the fourth quarter — if the new administration

delivers on some of its promises, including tax cuts, deregulation and infrastructure

spending. In fact, with a Republican majority in both the House of Representatives and the

Senate, Mr. Trump could benefit from smoother Congressional backing for policy initiatives

to boost economic activity. U.S. stocks and bonds have also reflected the optimism over the

outlook for U.S. growth and prospects that increased fiscal spending will help reflate the

economy, with the S&P 500 Index adding gains for the second straight week and benchmark

bond yields climbing in anticipation of faster inflation.

For the rupee, which has slumped 2.3 per cent from its 66.62 a dollar close on November 8,

the flight of capital from emerging market assets has inflicted significant pressure that has

been exacerbated by the Centre’s decision to withdraw higher denomination currencies.

Foreign institutional investors have sold more than $2.5 billion of Indian equity and debt

holdings so far this month, compared with the about $1.5 billion they offloaded through

October. With the demonetization move infusing a surge of liquidity into the banking

system, domestic interest rates are expected to decline, making the rupee less attractive to

investors seeking to benefit from an interest rate arbitrage. And with consumption and

broader economic activity predicted to take a hit on account of the shortage of cash in the

wake of the currency move, GDP growth may slow sharply. That in turn could weaken

overseas investor appetite for rupee assets. The task before policymakers, and the

monetary policy committee that is set to meet a week before the Federal Open Market

Committee’s rate decision, will be to reassure markets and investors that India’s economy

remains robust.

1. According to the passage, against most of the currencies the value of US dollar has:

a) Remained constant

b) Decreased slowly

c) Decreased rapidly

d) Increased rapidly

2. What does the author mean by saying ‘raising interest rates provided an up draught that

helped the dollar extends a record appreciating streak against the euro’?

a) Dollar became weak against the Euro.

b) Dollar became strong against the Euro.

c) Euro became strong against the Dollar.

d) Both dollar and Euro became strong against each other.

3. Which of the following factor can result in boosting the economic activities in US?

a) A Republican majority in the House of Representatives.

b) A Republican majority in the Senate.

c) A Republican majority in both the House of Representatives and the Senate.

d) Raising interest rates by Central Bank​

Answer 1

Answer:

1. d)

2. b)

3. c)

Explanation:

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