In the question given below, there are 2 statements marked as Assertion (A) and Reason (R). Choose the correct alternative from the following options.
Assertion (A)- As, Mittal is traveling to Japan for her honeymoon, we will consider this as a source of demand for foreign exchange.
Reason (R)- Any transaction that results in the receipt of foreign exchange leads to an increase in the demand for foreign exchange.
Answer & explanation
Correct answer: option 3
The correct answer is option 3: (A) Is true but (R) is false.
Assertion (A): As Mittali is traveling to Japan for her honeymoon, we will consider this as a source of demand for foreign exchange.
- True: When Mittali travels to Japan, she needs Japanese yen to spend there. To get yen, she must exchange Indian rupees for yen. This process creates a demand for foreign exchange (in this case, Japanese yen).
Reason (R): Any transaction that results in the receipt of foreign exchange leads to an increase in the demand for foreign exchange.
- False: A receipt of foreign exchange does not increase demand; it increases supply. For example, if a Japanese tourist visits India and spends yen, the Indian economy receives foreign exchange (yen). This adds to the supply of foreign exchange in India, not the demand.