Foreign Exchange Management Set 2
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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