Consider the following statement: 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. Select the correct answer using the codes given below:
- A.1,2,3 and 4
- B.2 and 3 only
- C.3 and 4 only
- D.1 and 4 only
▶ Answer & Explanation
Correct answer: B. 2 and 3 only
The exchange rate of a currency is primarily determined by market forces, specifically the demand for and supply of that currency. High demand for a country's goods and services, which requires its currency, will increase its value. Similarly, political and economic stability fosters confidence, attracting foreign investment and bolstering the currency's strength. The World Bank's role is in development finance, not direct currency pricing. While economic potential influences demand, it's the actual demand for goods/services and confidence from stability that directly impact pricing.
Source: UPSC gs1 2012