Consider the following statements about the foreign exchange market:
(A) Commercial banks, foreign exchange brokers, other authorised dealers and monetary authorities are its major participants.
(B) Although participants may have their own trading centres, the market itself is world-wide.
(C) There is close and continuous contact between the trading centres, but participants deal in a single market.
(D) People demand foreign exchange to send gifts abroad.
(E) A rise in the price of foreign exchange makes foreign goods costlier in rupees and reduces the demand for imports.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B), (D) and (E) only
The foreign exchange market is where national currencies are traded for one another. Its price is the exchange rate.
(A) Commercial banks, foreign exchange brokers, other authorised dealers and monetary authorities are its major participants. — Correct. These are the major participants named for this market.
(B) Although participants may have their own trading centres, the market itself is world-wide. — Correct. The trading centres are linked, so the market is world-wide.
(C) There is close and continuous contact between the trading centres, but participants deal in a single market. — Incorrect. The contact is there, but participants deal in more than one market.
(D) People demand foreign exchange to send gifts abroad. — Correct. Gifts sent abroad are paid in foreign currency.
(E) A rise in the price of foreign exchange makes foreign goods costlier in rupees and reduces the demand for imports. — Correct. Fewer imports mean a smaller demand for foreign exchange.
NCERT (2026-27): “6.2 The Foreign Exchange Market … The market in which national currencies are traded for one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorised dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centres , the market itself is world-wide. There is a close and continuous contact between the trading centres and the participants deal in more than one market.” “Demand for Foreign Exchange People demand foreign exchange because: they want to purchase goods and services from other countries; they want to send gifts abroad; and, they want to purchase financial assets of a certain country. A rise in price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good. This reduces demand for imports and hence demand for foreign exchange also decreases, other things remaining constant.” |