Question

Which of the following will increase the supply of foreign exchange
in country?
(a) A reduction in exports
(b) A rise in import of goods
(c) A rise in unilateral payments
(d) A rise in receipts of capital
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Answer 1

Answer:

b) A rise in import of goods.

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Answer 2

The correct answer is OPTION D: A rise in receipts of capital.

• The terms of trade of a country improve when export prices rise faster than import prices.
• Higher revenue leads to increased demand for the country's currency, which leads to a rise in its value.
• The exchange rate rises as a result. The exchange rate is set in a free exchange market when demand for foreign exchange matches supply.

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