Foreign Exchange Management Set 2 MCQs

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