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?

The correct answer is B (2 and 3 only). In the international market, a currency's price (its exchange rate) is set by the demand and supply of that currency. Statement 2 is correct because foreign demand for a country's goods and services creates demand for its currency, so strong export demand pushes its value up. Statement 3 is correct because political stability builds investor confidence and attracts foreign capital, which again raises demand for the currency.

• Statement 1 is wrong. The World Bank is a development lender. It does not fix or determine market exchange rates.
• Statement 4 is wrong. 'Economic potential' is too vague to be a direct determinant. Market prices respond to observable flows such as trade, capital movement and interest rates, not to a general notion of potential.

The core concept is the balance of payments and the foreign exchange market. It links to Mains GS-3 topics on exchange rate management, capital flows and the role of the RBI. Under a managed float, the RBI also intervenes, so the exchange rate is not purely market-determined.

Trap: Candidates pick A because statement 4 sounds like a growth factor, or they treat the World Bank as a market regulator. Check each statement against the actual mechanism, that is demand and supply in the forex market, and do not reward a plausible-sounding institution.