On This Page

This set of Foreign Exchange Management Multiple Choice Questions & Answers (MCQs) focuses on Foreign Exchange Management Set 2

Q1 | Zero coupon swap is an arrangement
  • Involving exchange of zero coupon bonds.
  • Whereby only one party makes payment periodically.
  • Whereby one of the counter-parties makes payment in lump sum instead of periodically.
  • None of the above.
Q2 | The acronym CIRCUS stands for
  • Current Interest Rate Swap.
  • Circular Currency Swap.
  • Combined Income Range Currency Swap.
  • Combined Interest Rate and Currency Swap.
Q3 | A forward rate agreement helps the user to
  • Fix the cost of borrowing.
  • Reduce the cost of borrowing.
  • Cover exchange risk
  • Avail tax benefit
Q4 | The swap arrangement where principal amounts are not exchanged, but periodicalpayments will be a
  • Currency swap
  • Cross currency interest swap
  • Interest rate swap.
  • Non-Financial swap.
Q5 | An interest rate cap is a series of
  • Call options
  • Put options.
  • Periodical payments
  • Differential payments.
Q6 | FRAs can’t+ be used for
  • Hedging.
  • Arbitraging.
  • Speculating.
  • Any of the Above.
Q7 | The true cost of hedging transaction exposure by using forward market is
  • Difference between agreed rate and spot rate at the time of entering into contract.
  • Difference between agreed rate and spot rate on the due date of contract
  • Forward premium / discount annualiz
Q8 | Hedging with options is best recommended for
  • Hedging receivables.
  • Hedging payables.
  • Hedging contingency exposures.
  • Hedging foreign currency loans
Q9 | A firm operating in India cannot hedge its foreign currency exposure through
  • Forwards.
  • Futures.
  • Options.
  • None of the above.
Q10 | Foreign currency exposures can be avoided by
  • Entering into forward contracts.
  • Denominating the transaction in domestic currency.
  • Exposure netting
  • Maintaining foreign currency accounts.
Q11 | The following method does not result in sharing of an exchange risk betweenimporter and exporter
  • Denominating in a third currency.
  • Denominating partly in importer's currency and partly in exporter's currency.
  • Entering a exchange rate clause in the contract.
  • Denominating in domestic currency.
Q12 | Leading refers to
  • Advancing of receivables.
  • Advancing of payables.
  • Advancing payments either receivables or payables.
  • Advancing of receivables and delaying of payables.
Q13 | Translation exposure arises in respect of items translated at
  • Current rate.
  • Historical rate.
  • Average rate.
  • All of the above.
Q14 | Translation loss is
  • A loss to the parent company.
  • A loss to the subsidiary company.
  • A notional loss.
  • An actual loss.
Q15 | The translation exposure is positive when
  • Exposed assets are lesser than exposed liabilities.
  • Exposed liabilities are lesser than exposed assets.
  • The exposure results in profit.
  • There are no liabilities.
Q16 | For the purpose of translations, current rate refers to
  • The rate current at the time of transaction.
  • The rate prevailing on the date of the balance sheet.
  • The rate prevailing on the date of preparation of the balance sheet.
  • The spot rate
Q17 | Exposed assets are those translated at
  • Historical rate.
  • Average rate.
  • Current rate.
  • Current rate or average rate.
Q18 | This is not established method of translation
  • Current rate method.
  • Monetary/Non-monetary method.
  • Temporary meth
  • D. Current/Non-current method
Q19 | A positive exposure will lead to when the currency of the subsidiary companyappreciates.
  • Translation gain.
  • Translation loss
  • Exchange gain.
  • Exchange loss.
Q20 | Translation loss may occur when
  • Exposed assets exceed exposed liabilities and foreign currency appreciates.
  • Exposed assets exceed exposed liabilities and foreign currency depreciates.
  • The subsidiary's balance sheet shows a loss.
  • The foreign currency depreciates.
Q21 | The following method cannot be used for managing translation exposure
  • Forward contract.
  • Option contract
  • Exposure netting.
  • Leading and lagging.
Q22 | Economic exposure does not deal with
  • Changes in real exchange rates.
  • Future cash flow of the firm
  • Expected exchange rate changes.
  • None of the above.
Q23 | The __________ refers to the orderly relationship between spot and forwardcurrency exchange rates and the rates of interest between countries.
  • one-price rule
  • interest-rate parity
  • purchasing-power parity
  • exchange-power parity
Q24 | The __________ is especially well suited to offer hedging protection againsttransactions risk exposure.
  • forward market
  • spot market
  • transactions market
  • inflation-rate market
Q25 | A multinational company that is faced with mild interference up to completeconfiscation of all assets is encountering__________.
  • translation risk exposure
  • transactions risk exposure
  • political risk exposure
  • a very bad day