Consider the following statements:

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 below:

[UPSC Civil Services Exam – 2012 Prelims]

(a) 1, 2, 3 and 4 are correct

(b) 2 and 3 are correct

(c) 3 and 4 are correct

(d) 1 and 4 are correct

Answer: (b)        

Explanation:

• World Bank is important to the source of financial and technical assistance to developing countries around the world.
• It has no relation to the price of the currency in the International Market. Hence statement 1 is not correct.
• The price of any currency is determined by forces of demand and supply. Demand for a currency depends on two factors- its exports to other countries and investments that people want to make in that currency. Hence statement 3 is correct.
• The stability of the government is a very important factor too as an unstable govt may not be able to take effective economic decisions which will, in turn, affect export and import. Hence statement 2 is correct.
• The economic potential of the country is not related to the price of any currency in the international market. Hence statement 4 is not correct.