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Questions › GATE › GATE 2023 › Q43
1 markInternational Economics › Balance of payments and exchange rates › Exchange rate conceptsEasyabout 1 min

GATE 2023 Question 43: Balance of payments and exchange rates

A 250 ml bottle of mango juice costs USD 4 in the United States. If the exchange rate is 0.02 USD per Rupee, then the cost of the same bottle of mango juice in Rupees would be ______ (in integer).

Answer and worked solution

Answer: 200

The exchange rate is given as 0.02 USD per Rupee, meaning 1 Rupee = 0.02 USD, or equivalently 1 USD = 10.02=50\dfrac{1}{0.02} = 500.021​=50 Rupees.

Cost in Rupees=4 USD×50 Rs/USD=200 Rs\text{Cost in Rupees} = 4 \text{ USD} \times 50 \text{ Rs/USD} = 200 \text{ Rs}Cost in Rupees=4 USD×50 Rs/USD=200 Rs

Therefore the cost is 200 Rupees.

The trap: 0.08

The exchange rate is given in the 'USD per Rupee' direction rather than the more commonly used 'Rupees per USD' direction — students who don't invert the given rate before multiplying may compute 4×0.02=0.084 \times 0.02 = 0.084×0.02=0.08 directly, applying the rate in the wrong direction.

Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.

What this question tests

This question is on Exchange rate concepts, part of Balance of payments and exchange rates in International Economics.

Nominal, real and effective exchange rates and how they are quoted and converted.

TestStop has 19 past-paper questions on this subtopic.

Take this paper as a timed mockMore on Exchange rate concepts

Question from the GATE 2023 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.