NISM Certifications · NISM-Series-XV: Research Analyst · Economic Analysis
A widening current account deficit, other factors unchanged, would generally exert which pressure on the domestic currency?
A widening current account deficit generally puts depreciation pressure on the domestic currency. Payments abroad for imports exceed foreign earnings, so demand for foreign currency outstrips supply, unless offsetting capital inflows finance the gap.
- ADepreciation pressure, since more foreign currency is demanded than suppliedCorrect
- BAppreciation pressure, since foreign currency supply rises
- CNo pressure, as the deficit is purely domestic
- DAppreciation pressure, since imports fall
Explanation
A larger current account deficit means payments to foreigners exceed receipts. Demand for foreign currency therefore exceeds supply, putting downward pressure on the rupee unless offset by capital inflows. The other options reverse the direction of the flows.
Did you get it right without looking?
One question tells you little. A timed set on Economic Analysis shows your real accuracy, how long you take and where you lose marks.
More Economic Analysis questions
- In the business cycle, the phase in which output is falling, but has not yet reached its lowest point, is called:
- A persistent current account deficit financed by volatile short-term capital inflows makes a country most vulnerable to which of these?
- When the Reserve Bank of India raises the repo rate while other factors remain unchanged, which is the most likely effect on the economy?
- Which of the following best describes stagflation?
- A widening current account deficit, with no change in other factors, is most likely to exert which pressure on the domestic currency?
- Which of the following is generally classified as a lagging economic indicator?