Question

Read the following statements carefully :
Statement 1: Import of heavy machinery from Japan is a source of demand for foreign exchange.
Statement 2: Financial aid by International Bank for Reconstruction and Development (IBRD) for landslide in Wayanad (Kerala) is a source of supply of foreign exchange.
In the light of the given statements, choose the correct option from the following :

• A. Statement 1 is true and Statement 2 is false.
• B. Statement 1 is false and Statement 2 is true.
• C. Both Statements 1 and 2 are true.
• D. Both Statements 1 and 2 are false.

Hint:

Remember, imports create demand for foreign exchange, while foreign aid and exports increase the supply of foreign exchange.

Answer 1

The Correct Option is C

Statement 1 is true because importing heavy machinery from Japan results in foreign exchange outflow, creating a demand for foreign currency.
Statement 2 is true because financial aid from IBRD to Kerala is considered a capital inflow, contributing to the supply of foreign exchange.