Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | An Indian family pays for a holiday in Paris | (I) | Demand for foreign exchange to buy financial assets abroad |
| (B) | An Indian sends a birthday gift to a cousin in Canada | (II) | Demand for foreign exchange to send gifts abroad |
| (C) | An Indian investor buys bonds issued by the US government | (III) | Demand for foreign exchange to buy services from another country |
| (D) | The rupee price of the dollar rises | (IV) | Demand for imports, and so for foreign exchange, falls |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) - (III), (B) - (II), (C) - (I), (D) - (IV)
People demand foreign exchange to buy goods and services abroad, to send gifts and to buy foreign financial assets. A dearer foreign currency cuts this demand.
| List-I | List-II | Reason |
|---|---|---|
| (A) An Indian family pays for a holiday in Paris | (III) Demand for foreign exchange to buy services from another country | A holiday abroad is a purchase of services from France. |
| (B) An Indian sends a birthday gift to a cousin in Canada | (II) Demand for foreign exchange to send gifts abroad | The gift must be paid in foreign currency. |
| (C) An Indian investor buys bonds issued by the US government | (I) Demand for foreign exchange to buy financial assets abroad | Bonds are financial assets. |
| (D) The rupee price of the dollar rises | (IV) Demand for imports, and so for foreign exchange, falls | Foreign goods cost more rupees, so fewer are bought. |
NCERT (2026-27): “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.” |