Quiznetik

Foreign Exchange Management | Set 1

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

Correct : B. Dual – currency bonds

84. Foreign exchange transactions involve monetary transactions

Correct : C. between residents of two or more countries

85. A foreign currency account maintained by a bank abroad is its

Correct : A. nostro account

86. Non-resident Bank Accounts’ refer to

Correct : B. vostro account

87. The number of nostro accounts that can be maintained by a bank in a particular currency is

Correct : D. no such limit

88. Full fledged money changers are authorized to undertake

Correct : D. purchase and sale of foreign currency notes, coins and travelers cheques

89. . IMF augments its resources by borrowing under

Correct : D. All the above

90. The abbreviations SDR stands for

Correct : A. Special Drawing Rights

91. The value of SDR is

Correct : D. based on basket of five currencies

92. The term World Bank refers to

Correct : C. Both IBRD and IDA

93. . IBRD lending is not available for

Correct : C. multilateral agencies

94. The eligibility to borrow from IDA is based on

Correct : D. all the above

95. Financial products of IFC does not include

Correct : D. none of the above

96. MIGA stands for

Correct : A. Multilateral Investment Guarantee Agency

97. Guarantee provided by MIGA to private investors covers risk of

Correct : D. all the above

98. The activities of ADB include

Correct : C. both a and b

99. A ‘credit’ in balance of payments indicates

Correct : D. Earning of foreign exchange or incurring of liability abroad or decrease in asset abroad

100. The current account of balance of payments does not include

Correct : D. None of the above