The correct answer is D. Neither 1 nor 2.
Mint parity theory is a theory of foreign exchange rates that states that the exchange rate between two currencies is equal to the ratio of the two countries’ mint parities. Mint parity is the official price of one currency in terms of another. This theory is only applicable in a gold standard system, where the value of each currency is fixed in terms of gold.
Balance of payments theory is a theory that explains the relationship between a country’s exports, imports, and other international transactions. It was propounded by Prof. Gustav Cassel in the early 20th century. Balance of payments theory is not a theory of foreign exchange rates.
Here is a brief explanation of each option:
- Option 1: Mint Parity theory is applicable in inconvertible paper currency standard.
Mint parity theory is a theory of foreign exchange rates that states that the exchange rate between two currencies is equal to the ratio of the two countries’ mint parities. Mint parity is the official price of one currency in terms of another. This theory is only applicable in a gold standard system, where the value of each currency is fixed in terms of gold.
In an inconvertible paper currency standard, the value of the currency is not fixed in terms of gold. Therefore, mint parity theory is not applicable in this system.
- Option 2: Balance of Payment theory was propounded by Prof. Gustav Cassel.
Balance of payments theory is a theory that explains the relationship between a country’s exports, imports, and other international transactions. It was propounded by Prof. Gustav Cassel in the early 20th century. Balance of payments theory is not a theory of foreign exchange rates.
Balance of payments theory explains how a country’s balance of payments is affected by its exports, imports, and other international transactions. It does not explain how the exchange rate between two currencies is determined.