Consider the following statements: The price of any currency in international 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?

[UPSC Civil Services Exam – 2012 Prelims]

(a) 1, 2, 3 and 4

(b) 2 and 3 only

(c) 3 and 4 only

(d) 1 and 4 only

Answer: (B)        

Explanation:

• The World Bank serves as a crucial source of financial and technical assistance for developing countries worldwide. However, it does not directly influence the pricing of currencies in the international market. Therefore, statement 1 is incorrect.
• The stability of a government is a significant factor that affects economic decision-making, which, in turn, impacts a country’s exports and imports. Thus, statement 2 is correct.
• The price of a currency in the international market is determined by the forces of demand and supply. The demand for a currency depends on factors such as its exports to other countries and the investments that individuals and entities wish to make in that currency. Therefore, statement 3 is correct.
• The economic potential of a country is not directly tied to the price of its currency in the international market. Hence, statement 4 is incorrect.