1. Maintaining a foreign currency account is helpful to
Correct : C. Avoid both transaction cost and exchange risk.
2. India’s foreign exchange rate system is?
Correct : B. Managed float
3. Hedging transaction is indicated by
Correct : D. None of the above.
4. The acronym SWIFT stands for
Correct : C. Society for Worldwide Interbank Financial Telecommunication.
5. Indirect rate in foreign exchange means
Correct : A. The rate quoted with the units of home currency kept fixed.
6. The maxim 'buy low; sell high' is applicable for
Correct : C. Direct rates.
7. India is facing continuous deficit in its balance of payments. In the foreign exchange
market rupee is expected to
Correct : A. Depreciate.
8. The effect of speculation on exchange rate is
Correct : C. Either or both of A and B.
9. The demand for domestic currency in the foreign exchange market is indicated by the
following transactions in balance of payment
Correct : C. Export of goods and services and capital inflows.
10. If PPP holds
Correct : B. The real exchange rate will not change.
11. The forward US dollar is quoted at premium against Indian Rupees. This implies
Correct : A. Money market rates are higher in India than in the US.
12. Determination of forward rates is explained by
Correct : D. None of the above.
13. According to International Fisher Effect
Correct : B. Forward Premium for a currency indicates its appreciation in future.
14. Cash and carry arbitrage explains the determination of
Correct : A. Forward Rates for currencies.
15. LIBOR is:
Correct : D. the maximum interest rate offered on bonds that are issued in London.
16. The margin for a currency future should be maintained with the clearinghouse by
Correct : C. Both the buyer and the seller.
17. The marking to market in respect of a currency future refers to
Correct : B. Adjusting the margin money of buyer and seller to reflect the current value of futures
18. For the balance kept in the margin account for futures
Correct : D. No interest is paid.
19. A feature of currency option that distinguishes it from other derivatives is
Correct : C. The buyer has only right, but no obligation to execute the contract
20. The following statement with respect to currency option is wrong
Correct : A. Call option will be used by exporters.
21. For contingency exposure of foreign exchange, the best derivative that can be used
to hedge is
Correct : C. Options.
22. The strike price under an option is
Correct : B. The exchange rate which the currencies are agreed to be exchanged under the contract
23. An option at-the-money when
Correct : D. The strike price and the spot price are the same.
24. Where an option is out of the money
Correct : C. The seller gains to the extent of the premium receiv
25. Banks permitted to run option book is required to fulfill the condition of
Correct : D. All the above.
26. Zero coupon swap is an arrangement
Correct : C. Whereby one of the counter-parties makes payment in lump sum instead of periodically.
27. The acronym CIRCUS stands for
Correct : D. Combined Interest Rate and Currency Swap.
28. A forward rate agreement helps the user to
Correct : A. Fix the cost of borrowing.
29. The swap arrangement where principal amounts are not exchanged, but periodical
payments will be a
Correct : C. Interest rate swap.
30. An interest rate cap is a series of
Correct : A. Call options
31. FRAs can’t+ be used for
Correct : D. Any of the Above.
32. The true cost of hedging transaction exposure by using forward market is
Correct : B. Difference between agreed rate and spot rate on the due date of contract
33. Hedging with options is best recommended for
Correct : C. Hedging contingency exposures.
34. A firm operating in India cannot hedge its foreign currency exposure through
Correct : B. Futures.
35. Foreign currency exposures can be avoided by
Correct : B. Denominating the transaction in domestic currency.
36. The following method does not result in sharing of an exchange risk between
importer and exporter
Correct : D. Denominating in domestic currency.
37. Leading refers to
Correct : C. Advancing payments either receivables or payables.
38. Translation exposure arises in respect of items translated at
Correct : A. Current rate.
39. Translation loss is
Correct : C. A notional loss.
40. The translation exposure is positive when
Correct : B. Exposed liabilities are lesser than exposed assets.
41. For the purpose of translations, current rate refers to
Correct : B. The rate prevailing on the date of the balance sheet.
42. Exposed assets are those translated at
Correct : C. Current rate.
43. This is not established method of translation
Correct : C. Temporary meth
44. A positive exposure will lead to when the currency of the subsidiary company
appreciates.
Correct : A. Translation gain.
45. Translation loss may occur when
Correct : B. Exposed assets exceed exposed liabilities and foreign currency depreciates.
46. The following method cannot be used for managing translation exposure
Correct : B. Option contract
47. Economic exposure does not deal with
Correct : C. Expected exchange rate changes.
48. The __________ refers to the orderly relationship between spot and forward
currency exchange rates and the rates of interest between countries.
Correct : B. interest-rate parity
49. The __________ is especially well suited to offer hedging protection against
transactions risk exposure.
Correct : A. forward market
50. A multinational company that is faced with mild interference up to complete
confiscation of all assets is encountering__________.
Correct : C. political risk exposure
51. Which of the following is not an example of an international trade draft?
Correct : C. Both the first and second answers are correct
52. A group of European countries have formed a union and created a common
currency known as __________.
Correct : D. the Euro
53. The forward exchange rate __________.
Correct : B. is the rate today for exchanging one currency for another at a specific future date
54. The spot exchange rate __________.
Correct : A. is the rate today for exchanging one currency for another for immediate delivery
55. What are the forms of assistance that the World Bank provides to its members?
Correct : A. Technical and financial
56. The World Bank Group is made up of how many organisations?
Correct : B. 5
57. The most liquid asset among the following is?
Correct : C. Cash
58. The system operated by the WTO is known as the
Correct : A. multilateral trading system
59. The price at which a market maker is prepared to buy (a currency) or borrow (money) is termed as
Correct : B. bid rate
60. A deposit or borrowing domiciled outside the home country of the currency is called as
Correct : C. euro currency
61. The price at which a market maker is prepared to sell (a currency) or lend (money)
Correct : D. offer rate
62. Bretton woods agreement arrived at in
Correct : A. July 1994
63. A contract that gives the buyer the right to buy commodity or a foreign currency
from the seller at a fixed price is called as
Correct : B. call option
64. CIF stands for
Correct : C. Cost, insurance, freight
65. The market where long term securities (shares, bonds, etc) are bought and sold is
called as
Correct : B. capital market
66. A bank located usually in another country that provides service for another bank is
Correct : C. Correspondent bank
67. _______________ is a process of taking advantage of differentials in interest rates
of two currencies while eliminating exchange risk.
Correct : C. Covered – Interest Arbitrage
68. Quotation where the price of one unit of foreign currency is given in terms of local
currency units is called as
Correct : B. . Direct quotation
69. FOB stands for
Correct : B. Free on board
70. An operation in order to protect the domestic currency value of an asset or a liability
that is denominated in foreign currency is called as
Correct : A. Hedging
71. Difference between buying and selling rates in an exchange rate or interest rate
quotation is known as
Correct : B. Spread
72. The price which one subsidiary or one unit of business charges from another for
selling goods or providing services is
Correct : A. Transfer price
73. The bond that does not pay any interest and issued at a price lower than its
reimbursement value is called as
Correct : A. Zero coupon bond
74. International Development Association established in
Correct : C. 1960
75. International Finance Corporation established in
Correct : A. 1956
76. ____________ means using short-term forward contracts to offset “paper” gains
and losses on the long-term assets and liabilities of foreign subsidiaries.
Correct : B. Hedging balance-sheet exposure
77. Which exchange rate theory focuses on the inflation – exchange rate relationship?
Correct : C. Purchasing power parity
78. The exchange rate prevailing at a financial reporting date
Correct : A. Closing exchange rate
79. The bank account of a non-resident of a country, where the amount of currency in
the account cannot be transferred to another country is called as
Correct : B. Blocked Account
80. Funds that cannot be remitted from the subsidiary to the parent due to host
government restrictions is known as
Correct : C. Blocked funds
81. Exchange rate between currency A and currency B, given the values of currencies A
and B with respect to a third currency is known as
Correct : D. Cross exchange rate A
82. Agreement to exchange one currency for another at a specified exchange rate and
date is
Correct : A. Currency swap
83. Long– term securities denominated in two currencies is called as