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 potent

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Q: 4 (IAS/2012)
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
Which of the statements given above are correct ?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,151,59,32,151,16,11

keywords: 

{'economic potential': [0, 0, 0, 1], 'international market': [0, 1, 0, 0], 'currency': [0, 1, 0, 3], 'stability': [1, 0, 0, 0], 'world bank': [0, 1, 0, 3], 'demand': [0, 0, 0, 3], 'goods': [0, 1, 5, 27], 'concerned country': [0, 1, 0, 1]}

The price of a currency in the international market is not regulated by a centralized institution such as the World Bank, hence option 1 is incorrect. The value of a currency is determined by currency exchange markets, which function based on supply and demand mechanisms.

The demand for goods/services provided by the country concerned (option 2) influences the currency price because if global demand for a country`s goods or services is high, it increases demand for its currency, thereby raising its value.

The stability of the government (option 3) is also a factor as political instability can lead to economic instability and hence a decrease in the value of the currency.

Option 4, the economic potential of a country, is not specifically linked to the value of a currency. It may have longing impact on a currency’s value but it`s not a direct factor. Therefore, it is not included, and Options 3 and 4, and 1 and 4 are incorrect.

Therefore, answer 2, which suggests that the price of a currency is decided by the demand for goods/services and the stability of the government, is correct.