Foreign Exchange Management Set 1
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This set of Foreign Exchange Management Multiple Choice Questions & Answers (MCQs) focuses on Foreign Exchange Management Set 1
Q1 | Maintaining a foreign currency account is helpful to
- Avoid transaction cost.
- Avoid exchange risk.
- Avoid both transaction cost and exchange risk.
- Avoid exchange risk and domestic currency depreciation
Q2 | India’s foreign exchange rate system is?
- Free float
- Managed float
- Fixed .
- Fixed target of band
Q3 | Hedging transaction is indicated by
- Transactions in odd amounts
- Presentation of documentary support.
- Frequency of such transactions.
- None of the above.
Q4 | The acronym SWIFT stands for
- Safety Width In Financial Transactions.
- Society for Worldwide International Financial Telecommunication.
- Society for Worldwide Interbank Financial Telecommunication.
- Swift Worldwide Information for Financial Transaction.
Q5 | Indirect rate in foreign exchange means
- The rate quoted with the units of home currency kept fixed.
- The rate quoted with units of foreign currency kept fixed.
- The rate quoted in terms of a third currency.
- None of the above.
Q6 | The maxim 'buy low; sell high' is applicable for
- Quotation of Pound-Sterling.
- Indirect rates.
- Direct rates.
- USDOLLARS.
Q7 | India is facing continuous deficit in its balance of payments. In the foreign exchangemarket rupee is expected to
- Depreciate.
- Appreciate.
- Show no specific tendency.
- Depreciate against currencies of the countries with positive balance of payment and appreciate against countries with negative balance of payment.
Q8 | The effect of speculation on exchange rate is
- It causes violent fluctuations in exchange rate.
- It aggravates the market trends.
- Either or both of A and B.
- Neither A nor B.
Q9 | The demand for domestic currency in the foreign exchange market is indicated by thefollowing transactions in balance of payment
- Export of goods and services
- Import of goods and services.
- Export of goods and services and capital inflows.
- Import of goods and services and capital outflows.
Q10 | If PPP holds
- The nominal exchange rate will not change.
- The real exchange rate will not change.
- Both real and nominal exchange rates will not change.
- Both real and nominal exchange will move together
Q11 | The forward US dollar is quoted at premium against Indian Rupees. This implies
- Money market rates are higher in India than in the US.
- Money market rates are lower in India than in the US.
- Market yield is higher in US than in India.
- Dollar has a better value than Indian Rupee.
Q12 | Determination of forward rates is explained by
- Uncovered interest arbitrage.
- Purchasing power parity theory.
- Demand and Supply for spot currency.
- None of the above.
Q13 | According to International Fisher Effect
- Forward Premium for a currency indicates its depreciation in future.
- Forward Premium for a currency indicates its appreciation in future.
- Forward Rates and spot rates are not linked
- Forward Rates are based on expected future spot rates.
Q14 | Cash and carry arbitrage explains the determination of
- Forward Rates for currencies.
- Spot rates for currencies.
- Both forward and spot rates for currencies.
- Penalty for non-execution of forward contracts.
Q15 | LIBOR is:
- the interest rate commonly charged for loans between banks.
- the average inflation rate in European countries.
- the maximum loan rate ceiling on loans in the international money
- the maximum interest rate offered on bonds that are issued in London.
Q16 | The margin for a currency future should be maintained with the clearinghouse by
- The buyer.
- The seller.
- Both the buyer and the seller.
- Either the buyer or the seller as per the agreement between them.
Q17 | The marking to market in respect of a currency future refers to
- Putting up for sale specific lot of futures.
- Adjusting the margin money of buyer and seller to reflect the current value of futures
- Quoting rates for different maturities.
- Allotting futures among different brokers.
Q18 | For the balance kept in the margin account for futures
- Interest is paid at riskless rate.
- Interest is paid at LIBOR rate
- Interest is paid for the surplus over the required minimum.
- No interest is paid.
Q19 | A feature of currency option that distinguishes it from other derivatives is
- It carries premium to be paid up front.
- It is optional to enter into the contract.
- The buyer has only right, but no obligation to execute the contract
- The seller has the right, but no obligation to execute the contract.
Q20 | The following statement with respect to currency option is wrong
- Call option will be used by exporters.
- Put option gives the buyer the right to sell the foreign currency.
- Foreign currency- Rupee option is available in India.
- An American option can be executed on any day during its currency.
Q21 | For contingency exposure of foreign exchange, the best derivative that can be usedto hedge is
- Forwards.
- Futures.
- Options.
- Swaps.
Q22 | The strike price under an option is
- The price at which the option is auctioned
- The exchange rate which the currencies are agreed to be exchanged under the contract
- . Lower of the market price and the agreed price
- None of the above
Q23 | An option at-the-money when
- The strike price is greater than the spot price, in the case of a call option.
- The strike price is greater than spot price, in the case of a put option.
- The option has a ready market.
- The strike price and the spot price are the same.
Q24 | Where an option is out of the money
- The premium will be refunded to the buyer.
- The buyer is unable to take up the contract
- The seller gains to the extent of the premium receiv
Q25 | Banks permitted to run option book is required to fulfill the condition of
- Continuous profit for at least three years.
- Minimum CRAR of 9%.
- Minimum net worth of Rs.200 crores.
- All the above.