Foreign Exchange, FDI and External Debt (External Sector) Part-III

Total Questions: 37

11. Which of the following is/are treated as artificial currency? [I.A.S. (Pre) 2010]

Correct Answer: (c) SDR
Solution:Artificial currency is a substitute for an actual currency that is used in economic transactions. An example of an artificial currency is the 'Special Drawing Right' (SDR) that was created by the IMF. SDRs are used by the members of the IMF to pay their dues and transfer funds between countries. The value of the SDR is computed using a group of currencies and adjusts as the price of the underlying currencies change. SDR is the currency of IMF while ADR/GDR are financial instruments.

12. What is the name of New Single European Currency: [U.P.P.C.S. (Pre) 1995]

Correct Answer: (b) Euro
Solution:The 'euro' is the official currency of 20 of the 27 member states of the European Union. It is also used officially by the institutions of the European Union, by four European microstates (Andorra, Monaco, San Marino and Vatican City) that are not EU members, the British Overseas Territory of Akrotiri and Dhakelia, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members also use euro as their currency.

The euro was established by the provisions in the 1992 Maastricht Treaty and the name 'euro' was officially adopted in Madrid on 16 December 1995. The euro was introduced to world financial markets as an accounting currency (unit of account) on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1: 1. Physical euro coins and banknotes entered into circulation on 1 January, 2002.

At present, euro is the second-largest reserve currency as well as the second-most traded currency in the world after the US dollar. Euro bank notes exist in seven different denominations: €5, € 10, € 20, € 50, € 100, €200 and € 500.

13. The currency of the proposed European Monetary Union will be: [I.A.S. (Pre) 1998]

Correct Answer: (b) Euro
Solution:The 'euro' is the official currency of 20 of the 27 member states of the European Union. It is also used officially by the institutions of the European Union, by four European microstates (Andorra, Monaco, San Marino and Vatican City) that are not EU members, the British Overseas Territory of Akrotiri and Dhakelia, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members also use euro as their currency.

The euro was established by the provisions in the 1992 Maastricht Treaty and the name 'euro' was officially adopted in Madrid on 16 December 1995. The euro was introduced to world financial markets as an accounting currency (unit of account) on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1: 1. Physical euro coins and banknotes entered into circulation on 1 January, 2002.

At present, euro is the second-largest reserve currency as well as the second-most traded currency in the world after the US dollar. Euro bank notes exist in seven different denominations: €5, € 10, € 20, € 50, € 100, €200 and € 500.

14. Which one of the following is not true for 'Euro' in 1999: [U.P.P.C.S. (Pre) 1999]

Correct Answer: (d) It is in circulation
Solution:As per the question period option (d) was not true for the Euro.  The 'euro' is the official currency of 20 of the 27 member states of the European Union. It is also used officially by the institutions of the European Union, by four European microstates (Andorra, Monaco, San Marino and Vatican City) that are not EU members, the British Overseas Territory of Akrotiri and Dhakelia, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members also use euro as their currency.

The euro was established by the provisions in the 1992 Maastricht Treaty and the name 'euro' was officially adopted in Madrid on 16 December 1995. The euro was introduced to world financial markets as an accounting currency (unit of account) on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1: 1. Physical euro coins and banknotes entered into circulation on 1 January, 2002.

At present, euro is the second-largest reserve currency as well as the second-most traded currency in the world after the US dollar. Euro bank notes exist in seven different denominations: €5, € 10, € 20, € 50, € 100, €200 and € 500.

15. In which year the new currency 'Euro' was introduced? [B.P.S.C. (Pre) 2008]

Correct Answer: (d) 1999
Solution:As per the question period option (d) was not true for the Euro.  The 'euro' is the official currency of 20 of the 27 member states of the European Union. It is also used officially by the institutions of the European Union, by four European microstates (Andorra, Monaco, San Marino and Vatican City) that are not EU members, the British Overseas Territory of Akrotiri and Dhakelia, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members also use euro as their currency.

The euro was established by the provisions in the 1992 Maastricht Treaty and the name 'euro' was officially adopted in Madrid on 16 December 1995. The euro was introduced to world financial markets as an accounting currency (unit of account) on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1: 1. Physical euro coins and banknotes entered into circulation on 1 January, 2002.

At present, euro is the second-largest reserve currency as well as the second-most traded currency in the world after the US dollar. Euro bank notes exist in seven different denominations: €5, € 10, € 20, € 50, € 100, €200 and € 500.

16. Euro is the national currency of: [U.P.U.D.A/L.D.A. (Pre) 2001]

Correct Answer: (c) Only 12 states of European Union
Solution:As per the question period, euro was the official currency of only 12 EU member countries. At present, it is the official currency of 20 out of 27 EU member countries. The 7 EU countries that do not use the euro as their official currency are Bulgaria, Czech Republic, Denmark, Hungary, Poland, Romania and Sweden. The euro currency is also used officially by the institutions of the EU, by four European microstates (Andorra, Monaco, San Marino and Vatican City) that are not EU members, as well as unilaterally by Montenegro and Kosovo.

17. Which country has not accepted Euro as its currency? [Jharkhand P.C.S. (Pre) 2003]

Correct Answer: (d) All the above
Solution:Britain, Denmark and Sweden all these countries do not use the euro as their currency.
  • There are 27 member countries in the European Union but six of them are not in the Eurozone and therefore don't use the euro.
  • Denmark is a member country but has negotiated an opt-out with the Union and it has kept its own currency.
  • The six countries that are not in the Eurozone choose to use their own currencies as a way to maintain financial independence on certain key issues.
  • These issues include setting monetary policy, dealing with issues specific to each country, handling national debt, modulating inflation, and choosing to devalue the currency in certain circumstances.

18. Eurodollars are: [I.A.S. (Pre) 1993]

Correct Answer: (c) U.S. dollars circulating in Europe
Solution:The term eurodollar refers to US dollar-denominated depos- its at banks outside the United States (especially in Europe), and thus are not under the jurisdiction of the Federal Re- serve of US. The term was originally coined for US dollars in European banks, but it expanded over the years to its present definition.

The term eurodollar refers to US dollar-denominated depos- its at banks outside the United States (especially in Europe), and thus are not under the jurisdiction of the Federal Re- serve of US. The term was originally coined for US dollars in European banks, but it expanded over the years to its present definition.

19. In which one of the following countries is Rupee its currency? [I.A.S. (Pre) 2003]

Correct Answer: (d) Seychelles
Solution:The Rupee is the official currency of Seychelles. Bhutan's currency is Ngultrum, Malaysia's currency is Ringgit and Maldives' currency is Rufiyaa.
  • Recently, the Reserve Bank of India (RBI) liberalized FEMA regulations, 1999 to encourage use of Indian Rupee (Internationalization of Rupee) for settlement of cross border transactions.
  • Internationalization of Rupee refers to a process that involves increasing the use of the rupee in cross-border transactions.
  • It involves promoting the rupee for import and export trade and then other current account transactions, followed by its use in capital account transactions.

20. Bangladesh's currency is: [M.P.P.C.S. (Pre) 1999]

Correct Answer: (a) Taka
Solution:Taka is the currency of Bangladesh. Dinar and Rial are the currencies of Iran and Lira (at present Euro) is the currency of Italy, while Rupiah is the currency of Indonesia.
  • Recently, the Reserve Bank of India (RBI) liberalized FEMA regulations, 1999 to encourage use of Indian Rupee (Internationalization of Rupee) for settlement of cross border transactions.
  • Internationalization of Rupee refers to a process that involves increasing the use of the rupee in cross-border transactions.
  • It involves promoting the rupee for import and export trade and then other current account transactions, followed by its use in capital account transactions.