Consider the following statements: The price of any currency in international market is decided by the 1. World Bank 2. demand for goods/services provided by the country concerned 3. stability of the government of the concerned country 4. economic potential of the country in question Which of the statements given above are correct?
- A1, 2, 3 and 4
- B2 and 3 onlyCorrect
- C3 and 4 only
- D1 and 4 only
Explanation
The correct answer is B (2 and 3 only) based on the standard principles of a floating exchange rate system.
Statement 1 is incorrect because the World Bank does not fix or decide the exchange rates of currencies. Prices are determined by market forces.
Statement 2 is correct because the demand for a country's goods and services directly creates a demand for its currency. Higher exports lead to an appreciation of the currency.
Statement 3 is correct because political stability is a key factor for investor confidence. A stable government attracts foreign investment, increasing the demand and value of the currency.
Statement 4 is incorrect in the context of immediate price determination. While economic potential influences long term trends, it does not directly decide the current market price of a currency in the same way that immediate demand, supply, and political stability do.
Therefore, only statements 2 and 3 are the primary factors that directly decide the price of a currency in the international market.
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