In this post, we are going to study important Money, Banking, and International Trade MCQs. Appeared many times in different competitive exams.

What share of foreign trade is focused on absolute differences in production costs?

1. Substantial
2. All      
3. Nil
4. Very little       

The views of Adam Smith on world trade can be better understood if one treats them as an answer to

1. Ricardo’s views on trade
2. The mercantilist approach to trade
3. The labor theory of value
4. None of these

Developing countries  usually complain of

1. Severe obstacles in the way of promoting exports
2. Detoriation in their terms of trade
3. The ambiguity and insufficiency of government assistance
4. All of these

Which among the following is not an assumption of the classical-territory of comparative cost advantage?

1. Production takes place under diminishing returns
2. Labor is the only factor of production
3. Prices are determined by their real labor costs of production
4. There are no tariffs

Law of comparative costs is based on

1. Opportunity cost theory
2. Labor theory of value
3. Law of diminishing returns
4. None of these

The most important cause of disparities in relative commodity prices and trading between nations is the disparities in international trade, according to the Heckscher-Ohlin theory of international trade.

1. Factor endowments
2. Consumer tastes and preferences
3. Demand conditions
4. Knowledge and technology

The role of the foreign exchange market is that of

1. Provisions of credit for financing foreign trade
2. Transfer of purchasing power
3. Furnishing facilities for hedging foreign exchange risks
4. All of these

The elasticity of the foreign exchange market for funding the outflow of capital is

1. Greater than zero
2. Zero
3. Less than infinity
4. One

Under the flexible system of exchange rates, the exchange rate is determined by the rate of exchange.

1. In the foreign exchange sector, the demand and supply powers
2. The central bank of the country
3. The purchasing power of currencies
4. Currencies’ buying power

The different (many) exchange rates were first used by

1. Ecuador
2. Brazil  
3. Peru
4. Germany       

What does the current theory of international trade expect about the disparity in trade-related factor prices between countries?

1. Diminishes
2. Increases  
3. Either diminishes or increases
4. Remains the same

In foreign exchange, the spot and forward markets are connected to each other through

1. Speculation
2. Hedging
3. Interest arbitrage
4. All of these

The deficit gap in the balance of payments can be corrected by

1. Monetary squeeze
2. Exchange controls and import quotas
3. Devaluation
4. All of these

If unity is the elasticity of international demand for the country’s exports, the foreign exchange supply curve will be

1. Vertical
2. Backward bending
3. Horizontal
4. Positively sloping from left to right

What of the following things are invisible in the balance of payments?

1. Foreign investment
2. Government expenditure abroad
3. Goods exported
4. Foreign travel

What will be the effect on the status of the country’s balance of payments when inflationary pressures are used to minimize spending policies?

1. Unfavorable
2. Highly unfavorable
3. Neutral
4. Favorable 

Effects of devaluation of the currency by a nation

1. Promotion of import substitution
2. Expansion of the export trade
3. Contraction of import trade
4. All of these

Dynamic variables in the field of the theory of international trade contribute to changes in

1. Technical knowledge and methods of production
2. Income
3. Factor endowments
4. All of these

Of the following terms of exchange, one of which was adopted by F.V.Taussig?  

1. Commodity terms of trade
2. Income terms of trade
3. Double fact oral terms of trade
4. Real cost terms of trade

Which of the following was not favored by the mercantilists?

1. Free trade
2. Accumulation  of gold by the country
3. Import restriction
4. Export promotion

If the rise in exports exceeds the rise in imports and other factors remain the same, the expected change in the revenue ?

1. Remain the same
2. Rise
3. Move in an uncertain manner
4. Fall

The very short-term loan market is known as

1. Money market
2. Capital market
3. Discount market
4. Stock market

By that year, as an international monetary mechanism, the gold standard had almost vanished from the world.

1. 1936
2. 1933   
3. 1945
4. 1939   

The “terms of trade” refer to

1. Bilateral trade agreements
2. Ratio of export prices to import prices
3. One country’s comparative advantage over another in the production of a specific commodity
4. Rates of exchange between two currencies

Identify the nation that first employed credit rationing as a credit control instrument.

1. UK
2. Germany        
3. France
4. USA   

The principal role of the criteria for legal cash reserves is to

1. Influence on the deposit of demand generating capacity of commercial banks
2. Ensure safety of deposits
3. Keep a portion of deposits liquid
4. Regulate the inter-sectoral flow of money supply

Commercial banks still have to face a dispute/conflict between

1. Central bank and themselves
2. Share holders and depositors
3. Demand deposits and time deposits
4. Liquidity and profitability

From following is not an asset-side item on a commercial bank’s balance sheet?

1. Money at call and short notice
2. Investments
3. Advances
4. Reserves        

An instrument to control quantitative credit?

1. Prescribing margin requirements
2. Credit rationing
3. Consumer credit regulation
4. Variable reserve ratio

Identify one of the instrument of qualitative credit control.

1. Bank rate
2. Credit rationing
3. Minimum statutory cash reserves ratio
4. Open market operations

In a bimetallic standard

1. As an unrestricted legal tender, gold and silver coins circulate.
2. The coinage and the exports and imports of both metals are free of charge.
3. Two metals are monetized concurrently (usually gold and silver) and their monetary values are set as legal tender values.
4. All of these

Selective credit management equipment is used by a country’s central bank to

1. Regulate credit-creation on the part of some selected banks
2. Regulate the economy’s amount of aggregate bank credit
3. Selectively allocate credit among banks
4. Manage the flow of aggregate bank loans to various productive activities in the economy

The immediate result of banks creating credit is

1. Increase in money supply
2. Rise in prices  
3. Reduction of poverty
4. Increase in real national income

The bank rate refers to the interest rate at which

1. Central bank gives loans to commercial banks
2. Commercial banks receive deposits from the public
3. Commercial banks grant loans to their customers
4. Government loans are floated

OMO (Open market operations) refer to the buying and selling of

1. Foreign exchange
2. Commercial bills
3. Government securities
4. Gold

If the demand for loans declines substantially, banks will be forced to

1. Adjust their portfolios
2. Sell securities to the public
3. Increase liquidity
4. Resort to creating credit

Which one will decrease the lending ability of commercial banks?

1. Sale of securities in the open market by the central bank
2. Reduction in the discount rate
3. The Central Bank’s buying of securities on the free market
4. Reduction of the cash reserves ratio required

Which of the following is not a part of the un-organized Pakistani money market?

1. Co-operative credit societies
2. Indigenous bankers
3. Moneylenders
4. Chit funds

The instrument of minimum legal cash reserves ratio for banks was first implemented in which country?

1. UK
2. USA   
3. Japan
4. Germany        

A variation of the community banking system, the chain banking system emerged in the mid-nineteenth century and reached the peak of popularity in the present century.

1. UK
2. USA   
3. Italy
4. Germany  

In the majority of countries in the world, the branch banking method is currently in vogue. Identify the nation where it first emerged

1. UK
2. South Africa
3. Australia
4. Canada     

Each individual bank is a separate entity, with its own independent management and board of directors, under the unit banking structure. What country is commonly considered to be the home of the system of unit banking?

1. Germany
2. USA   
3. Japan
4. France

Which is not a feature of a country’s central bank?

1. Controller of credit
2. Lender of the last resort
3. Supervisor of nation’s fiscal policy
4. Custodian of  nation’s foreign exchange reserves

What’s not a risk for a commercial bank?

1. Time deposits
2. Demand deposits
3. Security holdings
4. Advances from the central bank

Which of the following is not a commercial bank function?

1. Granting loans and advances
2. Accepting public deposits
3. Banker to the Government
4. Undertaking agency functions

The reduction or removal of inflation is referred to as

1. Deflation
2. Disinflation
3. Stagflation
4. Creeping inflation

Originally in 1931, the first description of stagflation was presented by

1. J.M. Keynes
2. Friedrich A. von Hayek
3. Milton Friedman
4. Bent Hansen

Stagflation applies to a scenario that is characterized by

1. Inflation and deflation
2. Deflation and  rising unemployment
3. Stagnant employment and deflation
4. Sustained price-rise and rising unemployment

Astronomical increases in prices occur during the time of hyper-inflation and, as a result, money becomes almost worthless. In Germany in 1923 and in China in 1923, such a condition was seen in

1. 1949
2. 1947   
3. 1953
4. 1951

Which of the following steps are helpful for inflation control?

1. Price control and rationing of essential goods
2. Reduction of government expenditure
3. Raising the bank rate
4. All of these

The demand for money primarily depends upon, keeping in view of Classical approach 

1. Economic transactions
2. Rate of interest
3. Precautionary motive
4. Speculative activity

In what capacity does a person stand to benefit from deflation?

1. As a debtor
2. As a pensioner
3. As an equity-holder
4. As an entrepreneur

The trap state of liquidity (liquidity trap) exists at

1. Very low rate of interest
2. Low rate of interest
3. Very high rate of interest
4. High rate of interest

The interest elasticity of the speculative market for capital is at a very low rate of interest becomes

1. High
2. Low    
3. Infinite
4. Very high       

Which one is not a monetary policy instrument?

1. Bank rate
2. Taxation        
3. Credit rationing
4. Open-market operations

A retail price index measure changes in

1. General purchasing power of money
2. Consumers’ cost of living
3. Patterns of consumer expenditure
4. Average standard of living

Under the conditions of the liquidity trap, the degree of elasticity with respect to speculative demand for money is

1. One
2. Zero    
3. Infinite
4. Greater than one

The relationship between the interest rate on the market and the price of a bond on the market is

1. Direct
2. Inverse           
3. Uncertain
4. Positive and proportionate

The approach of money transactions to the quantity theory of money is generally linked with the name of

1. Irving Fisher
2. Alfred Marshall
3. D.H. Robertson
4. J.M. Keynes

Great Economists and their Works

Which of the following according to Milton Friedman is not a key determinant of the demand for money?

1. Precautionary motive
2. Aggregate wealth
3. Physical non-human capital goods and human capital or wealth
4. Relative rates of return obtainable on different forms of assets

Who introduced the concept of the real balance effect?

1. Alfred Marshall
2. A.C. Pigou
3. Milton Friedman
4. J.M. Keynes

Cost-push inflation is caused by

1. Increase in investment
2. Increase in the quantity money of
3. Increase in the prices of inputs
4. Creation of credit money       

In the Fisher’s equation of exchange MY=PT, what does T denote?

1. Volume of trade
2. Period of time
3. Trend value of general price level
4. Total money wealth

Identify Pigou’s cash balances equation

1. M=KPO
2. M=KR/P       
3. M=Ky+K’A
4. M=PKT

Who Quantity Theory of Money establishes the relationship between the quantity of money in an economy and the level of

1. Price  
2. Employment
3. Savings
4. National income

Who is generally regarded as the founder of the Modem Quantity Theory of Money?

1. Milton Friedman
2. J.M. Keynes
3. Don Patinkin
4. M.I. Bursten

When did the UK finally abandon the gold standard?

1. 1929
2. 1925   
3. 1936
4. 1931   

During which decade of the nineteenth century, did most European countries adopt the gold standard?

1. Seventies
2. Sixties
3. Nineties
4. Eighties          

Identify the country which was the first to adopt the gold standard

1. France
2. UK     
3. USA
4. Germany        

Bad money pushes out the circulation of good money. Whose name connects this law with?

1. Thomas Gresham      .
2. J.M. Keynes
3. R.G. Hawtrey
4. L.B. Mises

Which function of money was emphasized more in the Keynesian theory as opposed to the classical theory?

1. Medium of exchange
2. Unit of account
3. Store of value
4. Standard of deferred payments

The small legal-tender cash stands for the money portion that

1. Is legal tender for payment up to a certain maximum amount
2. Is issued in a limited amount
3. Is to be used in specific transactions
4. Is legal tender in specified areas

If the value of money as a commodity and its value as money are equivalent, it is called

1. Full-bodied money
2. Token money
3. Fiat money
4. Quasi-money

An example of quasi-money or near money?

1. Cheque            .          
2. Bills of exchange
3. Coins
4. Bank notes

Fiat money refers to:

1. Legal money
2. Credit money
3. International Money
4. Full-bodied money

Money has been defined as “that by delivery of which debt contracts and price contracts are discharged, and in the shape of which general purchasing power is held.” Whose  definition is

1. D.H. Robertson
2. G. Crowther
3. George N. Halm
4. J.M. Keynes

Which of the following is not a function of money?

1. Unit of account
2. Medium of exchange
3. Stabilization of price level
4. Standard of deferred payments

In the “gold certificates” that circulated in the U.S.A. before being removed from circulation in the United States, the best example of representative full-bodied cash is found.

1. 1927
2. 1925   
3. 1933
4. 1929   

Which approach to the concept of money offers the widest view of money possible?

1. Conventional approach
2. Central bank approach
3. Gurley Shaw approach
4. Chicago approach