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Sandeep Garg Macroeconomics Class 12 Solutions Chapter 11

Last updated date: 24th Nov 2023
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Class 12 Macroeconomics Sandeep Garg Solutions Chapter 11 - Foreign Exchange Rates

Countries across the world have their respective currencies. The values of these currencies vary from one nation to another, depending on the country’s economic status. To trade among themselves, countries need to exchange currencies. This is where the Foreign Exchange Rate comes into play. It is the rate at which one currency is exchanged for another. The CBSE Macroeconomics syllabus comprises an elaborate chapter on FOREX (Foreign Exchange). The concepts of FOREX are discussed in the Sandeep Garg Macroeconomics Class 12 Solutions Chapter 11. 


This chapter has been drafted in a question-answer format. A total of 7 solutions have been provided in this chapter, which is also accompanied by diagrams. Thus, students can understand and learn the topics covered in this chapter by referring to these solutions.

Sandeep Garg Macroeconomics Class 12 Solutions Chapter 11

Main Topics in Sandeep Garg Class 12 Macroeconomics Solutions Chapter 11

Chapter 11 in the Sandeep Garg Macroeconomics Class 12 solutions deals with the currency exchange rates, FOREX market, FOREX institutions, rate, and demand of foreign exchange. Let us go through the important topics included in Macroeconomics class 12 chapter 11 Sandeep Garg.


Foreign Exchange Rate

The foreign exchange rate can be defined as the price or value of a domestic currency with respect to another currency. A foreign exchange rate is needed to draw a comparison between various currency values. It has a major role to play in international trade. Every relevant term, concept, and theory has been discussed in the Class 12 Macroeconomics Foreign Exchange Rates chapter.


Functions of FOREX Market

The various functions of a Foreign Exchange Market are as follows.

  1. Transfer Function

  2. Credit Function

  3. Hedging Function

Each of these functions is thoroughly explained in Class 12 Macroeconomics Foreign Exchange Rates solutions by Sandeep Garg.


Different Exchange Rate Systems

This is one of the most crucial topics in class 12 macroeconomics Sandeep Garg chapter 11 Foreign Exchange Rates. The different types of exchange rates are as follows.

  • Fixed Exchange Rate

  • Floating Exchange Rate

  • Managed Floating Exchange Rate

You can refer to class 12 Sandeep Garg solutions Foreign Exchange Rates (Chapter 11) to understand these concepts in details.


Nominal Exchange Rate

Nominal Exchange Rate or NER is the total number of domestic currency units required to purchase one unit of foreign currency.


Nominal Effective Exchange Rate (NEER)

Nominal Effective Exchange Rate or NEER measures the average value or position of a particular currency in comparison to other currencies. However, unlike NER, the impact of changing price levels is taken into account in NEER.


Real Exchange Rate

Real Exchange Rate or RER is the exchange rate which is determined without considering the effects of price changes. RER is calculated based on constant or fixed prices.


Real Effective Exchange Rate (REER)

Real Effective Exchange Rate or REER measures the average relative value or position of a particular currency in comparison to other currencies. It does not take into account the effects of changing market prices.


Tips to Follow for Your Economics Exams

Economics is one of the most important subjects in your +2 curriculum. It is a subject in which you can score enough marks to score a good aggregate. Incorporate the following methods in your study practices to score well in Economics.

  • Go through all the question papers of the preceding years to get an idea of the question format.

  • Apart from studying the concepts from textbook refer to reliable solutions.

  • Try answering and solving various kinds of questions.

  • Make sure to understand the conceptual topics, rather than memorizing them.

  • Solve the questions given in the solutions, sample papers, etc. once you are done with the first round of study.

Class 12 students can also sign up on Vedantu to read and solve Economics questions. For example, class 12 macroeconomics Sandeep Garg solution chapter 11 PDF is provided on Vedantu. Students can download it for free and practice the answers.


What are Foreign Exchange Transactions?

Foreign Exchange Transactions refer to the sale and purchase of foreign currency. Simply put, the function of foreign exchange is the exchange rate of one country for another at the agreed rate on a specific date.

1. Spot transaction: In this transaction, the buyer and seller settle their transactions within two days of the agreement. It is a very fast medium of exchange of money. No contract is signed between the two countries as the currencies are exchanged over 2 days.

2. Forward transaction: In this type of transaction the buyer and seller agree for the future to sell and buy a currency after 90 days of the deal at a fixed currency rate with a specific future date.

3. Future transaction: Future transactions are also forward transactions and the dealings take place in the same way as that of normal forward transactions. However, transactions made in a futures contract differ from the work performed in forward transactions.

4. Swap transactions: Swap transactions involve borrowing and lending of two different currencies between two investors. Here one investor borrows money and then lends money to a second investor. The repayment obligation is used as collateral, and the amount is reimbursed for the carrying amount.

5. Option transactions: The foreign exchange option gives the investor the right, but not the obligation to exchange the currency in one system to another at the agreed exchange rate on a predefined date. The option to purchase a currency is called the Call Option, and the option to sell the currency is called the Put Option. 


Meaning of "Arbitrage" in the Foreign Exchange Market

Arbitrage is the process of selling and purchasing currencies simultaneously in two or more foreign exchange markets to make a profit by making money at different exchange rates in different markets. Arbitrage opportunities exist due to market inefficiency.

FAQs on Sandeep Garg Macroeconomics Class 12 Solutions Chapter 11

1. What are The Different Types of Exchange Rate Systems?

The different types of exchange rate systems are fixed exchange rate, flexible exchange rate, and managed floating exchange rate system. Each of these systems has their respective merits and demerits for determining FOREX rate.

2. How Many Questions Are There in Chapter 11 of Sandeep Garg Macroeconomics Solutions for Class 12?

There are seven questions in the Sandeep Garg class 12 macroeconomics solutions chapter 11. These questions are related to the foreign exchange system, its functions, types, and so on.

3. What is the Meaning of RER in Economics?

RER is economics stands for Real Exchange Rate. It is calculated keeping aside the effects of changing prices in an economy. Thus, RER is determined based on constant or fixed prices.

4. Why choose Sandeep Garg Solutions Chapter 11 - Foreign Exchange Rates?

Sandeep Garg Class 12 Macroeconomics Solutions Chapter 11: Foreign Exchange Rates are explained by expert economics teachers. Here, we have provided solutions from foreign exchange rates, which will be helpful to students to get good marks in board exams. This experience is especially important for students who prepare on their own and home studies. Preparing for an exam will be much easier with these solutions. We have included a few solutions based on foreign exchange rates that are bound to help students do well in their board exams.

5. Why should one choose Vedantu to download Sandeep Garg Class 12 Macroeconomics Solutions Chapter 11 - Foreign Exchange?

Vedantu aims to be a one-stop solution for all the Sandeep Garg Class 12 Macroeconomics Solutions Chapter 11: Foreign Exchange. We provide pdf which is optimized in high-quality and chosen by schools for their students. To move forward in our endeavor, we have made solutions to Sandeep Garg's 12th grade book available on the Vedantu free of cost. The provided solutions for Sandeep Garg Class 12 Economics are prepared in an intelligent way and in a format easily accessible to students. Sandeep Garg's 12th-grade economic solutions are in PDF format, easily downloadable or printable by students.

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6. What is the shape of the demand curve of foreign exchange?

The negatively sloped demand curve (DD) indicates additional foreign exchange (OQ1) is required for a low exchange rate (OR1), whereas, the demand for US dollars falls to OQ2 if the exchange rate rises to OR2. The curve of the need for foreign exchange declines due to the negative relationship between foreign exchange demand and the exchange rate. This is because the rise in the price of foreign currency increases the price of a rupee of foreign goods, making it more expensive. As a result, imports are declining.

7. What is the exchange depreciation? What is the effect of domestic currency on exports of the country?

Reduction of the exchange rate of a foreign currency in its true relative value (as the purpose of encouraging exports) is called exchange depreciation. With the decline in the value of domestic money, the demand for export (in the country of origin) increases. This is because the depreciation of domestic currency results in a fall in the price of the domestic currency in terms of foreign currency. Depreciation increases the demand for domestically produced goods by deducting their relative price in the foreign exchange chapter.

8.  What do you mean by foreign exchange market?

The foreign exchange market (also known as forex, FX, or financial market) is an over-the-market (OTC) global marketplace that determines the exchange rate of currencies worldwide. Participants in these markets can buy, sell, exchange, and speculate exchange rates related to pairs of various currencies. Foreign exchange markets are made up of banks, forex traders, trading companies, major banks, investment management firms, hedge funds, forex traders, and investors. It is by far the largest financial market in the world and comprises a global network of financial centers that transact 24 hours a day, closing only on the weekends.