Both (b) and (c)

Balance of Trade

Dirty Floating

Current Account deficit in BOP occurs when the sum of receipts of foreign Exchange on account of trade in visible and invisible goods is less than the sum of payments of foreign Exchange on account of trade in visible and invisible goods.
A CAD implies that a country has contracted to spend more foreign exchange than it has been able to earn during the year.
A CAD can be financed through various sources:
i) A country may use a part of its gold stocks and maka payments to foregners by means of gold.
ii) A country may draw upon the reserves of foreign currencies and foreign securities
iii) A country may borrow foreign exchange from different officials and private sources.
iv) It may mobilise foreign Exchange by attracting deposits from foreigners and investment of capital by foreigners.

Devaluation refers to the fall in the value of domestic currency in relation to a foreign currency, as planned by the government. It is the government which reduces the value of domestic currency in terms of the foreign currency Whereas, Depreciation refers to the fall in the value of domestic currency in relation to a foreign currency. It is the free play of the forces of demand and supply of foreign exchange in the Foreign exchange market, which determines the exchange rate and not the government. While devaluation causes a desired fall in the value of rupee (to promote exports and curb imports) depreciation may cause undesired fall as well, in the value of domestic currency, as the import bill of the government may become very high, leading to a rise in the Current Account Deficit (CAD) and fiscal deficit to unmanageable limits.

1.Balance of Trade refers to the balance occurring on account of export and import of goods only (visible items) whereas, current account balance includes the Balance of Trade (BOT) as well as the balance on Invisibles.
2.Current account balance isa wider phenomenon than BOT.The difference lies in 'the balance on Invisibles'. In BOT, we exclude the balance onInvisibles but in current account balance we include it.

This rise in the FER is the floating rate and the central bank tries to influence the rate by "entering" the market as bulk buyer/seller. When it finds this floating rate to be too high, its starts selling FE from its resources to bring down the rate, in order to help the importers especially of items like rare life saving medicines etc. in the interest of social welfare. This adjustment in the floating rate of exchange is known as managed floating rate.

"Devaluation" of domestic currency is a phenomenon of the fixed exchange rate system, because it is the government which decides when to change the existing exchange rate. Whereas "Depreciation" of domestic currency is a phenomenon of the flexible exchange rate system. Under this system, the exchange rate is determined by the free play of the forces of demand and supply of foreign exchange in the foreign exchange market. Depreciation of domestic currency has a favourable effect on the exports of the country, which now become cheaper, so they will be more in demand. This brings about export promotion in the economy. On the other hand, depreciation has a unfavourable impact on the imports of the country, as they become costlier. So, their consumption will get restricted, i.e., their demand shall fall. This leads to import restriction.

There is a direct relation between foreign exchange rate and supply of foreign exchange. Higher the exchange rate, higher the supply of foreign exchange and lower the exchange rate, lower the supply of foreign exchange. Suppose the price of US dollar in India falls from Rs 50 to Rs 40. It means that earlier, USA could buy Rs 50 worth of goods from India by parting one US dollar. Now it can buy only Rs 40 worth of goods from India. Indian goods becomes costlier for USA. Therefore, USA will buy less of Indian goods. This reduces the supply of US dollars to India. So lower the foreign exchange (i.e. price of US dollar) lower the supply and vice versa. Graphically, the supply curve of foreign exchange is upward   sloping,signifying the direct relation between foreign exchange rate and supply of foreign exchange.
In the figure,at price OP, the supply of foreign exchange is OF.At low price   \(OP_{ 0 }\)    the supply is \(OF_{ 0 }\)  i.e., lower At a higher price \(OP_{ 1 }\) supply of FE is \(OF_{ 1 }\) i.e., higher.

Another system of foreign exchange has emerged recently called 'Managed Floating Exchange Rate'. It is termed as managed because the central bank tries to influence the exchange rate by entering the foreign exchange market as a bulk buyer/seller. During the period, when the floating rate is too high, it starts selling foreign exchange from its reserve, so as to bring the rate down. On the other hand when the floating rate is too low, it starts buying foreign exchange, in order to boost up the rate. This is done by the central bank in the interest of importers and exporters. Another name by which Managed Floating Rate is known as 'Dirty Floating Rate.'

Balance of payment account shows a systematic record of all the economic transactions between the residents of a country and the rest of the world (R.O.W) during the given year. The two parts of Balance of Payment account are Current Account and Capital Account.

Managed floating system is a mixture of two systems of exchange, i.e. fixed exchange rate system and flexible exchange rate system. In this system, the Central Bank can intervence to purchase or sell foreign currencies in an effort to moderate exchange rate movements, whenever they feel such actions are appropriate.  

When there is a rise in the visit to foreign countries by the people in India, the demand for foreign currency increases. With the supply of foreign currency remaining same, the foreign exchange rate rises, implying a depreciation of rupee.

When exchange rate falls, imports become cheaper, demand for imports rises and so rises the demand of foreign exchange to purchase more imports.

i) To purchase of goods and services from other countries.
ii) To send a gift abroad.
iii) To purchase financial assets in a particular country and
iv) To speculate on the value of foreign currencies.

Balance of Trade=Value of Exports- Value of Imports

              -RS500=RS400-Value of Imports

\(\therefore \) Value of Imports=RS.9000 crore

Foreign exchange refers to any foreign currency. Thus, US dollars, British pounds are foreign exchange for India. Foreign exchange rate is the price of one currency in terms of another currency. It is the rate at which exports and imports of a country are valued during a period of time.
There is an inverse relation between foreign exchange rate and demand for foreign exchange. Higher the foreign exchange rate, lower the demand for foreign exchange and lower the foreign exchange, rate, higher the demand
for foreign exchange. Suppose the' price of US dollar in India falls from Rs 50 to Rs 40. It means that earlier Indian people had to part with Rs 50 to buy one dollar worth of goods from USA. Now they have to part with Rs 40 to buy one dollar worth of goods from USA. It implies that American goods have become cheaper for Indian buyers. At a lower price of US dollar, India is ready to buy more goods from USA.
This raises the demand for US dollars. So, lower the price of US dollars,higher is the demand for US dollars and vice versa. Graphically, the demand curve of foreign exchange is downward sloping y signifying the inverse relation between foreign exchange rate and demand for foreign exchange. In the figure, at price Or, the demand for foreign exchange is OF. At a lower price ' the demand is \(OP_{ 0 }\) , i.e., higher. At a higher price \(OF_{ 1 }\) , demand is \(OP_{ 1 }\) i.e., lower than OF.