Chapter:

20+ Foreign Exchange Market Solved MCQs

in Banking and Finance 2

Chapters

43

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1.	Maintaining a foreign currency account is helpful to
A.	Avoid transaction cost.
B.	Avoid exchange risk.
C.	Avoid both transaction cost and exchange risk.
D.	Avoid exchange risk and domestic currency depreciation
Answer» C. Avoid both transaction cost and exchange risk.

discuss

2.	India’s foreign exchange rate system is?
A.	Free float
B.	Managed float
C.	Fixed
D.	Fixed target of band
Answer» B. Managed float

discuss

3.	Hedging transaction is indicated by
A.	Transactions in odd amounts
B.	Presentation of documentary support
C.	Frequency of such transactions
D.	None of the above
Answer» D. None of the above

discuss

4.	The acronym SWIFT stands for
A.	Safety Width in Financial Transactions.
B.	Society for Worldwide International Financial Telecommunication.
C.	Society for Worldwide Interbank Financial Telecommunication.
D.	Swift Worldwide Information for Financial Transaction.
Answer» C. Society for Worldwide Interbank Financial Telecommunication.

discuss

5.	Indirect rate in foreign exchange means
A.	The rate quoted with the units of home currency kept fixed.
B.	The rate quoted with units of foreign currency kept fixed.
C.	The rate quoted in terms of a third currency.
D.	None of the above.
Answer» A. The rate quoted with the units of home currency kept fixed.

discuss

6.	The exchange rate is
A.	The price of one currency relative to gold.
B.	The value of a currency relative to inflation.
C.	The change in the value of money over time.
D.	The price of one currency relative to another.
Answer» D. The price of one currency relative to another.

discuss

7.	India is facing continuous deficit in its balance of payments. In the foreign exchange market rupee is expected to
A.	Depreciate.
B.	Appreciate.
C.	Show no specific tendency.
D.	Depreciate against currencies of the countries with positive balance of payment and appreciate
Answer» A. Depreciate.

discuss

8.	The effect of speculation on exchange rate is
A.	It causes violent fluctuations in exchange rate.
B.	It aggravates the market trends.
C.	Either or both of A and B.
D.	Neither A nor B.
Answer» C. Either or both of A and B.

discuss

9.	The demand for domestic currency in the foreign exchange market is indicated by the following transactions in balance of payment.
A.	Export of goods and services
B.	Import of goods and services.
C.	Export of goods and services and capital inflows.
D.	Import of goods and services and capital outflows.
Answer» C. Export of goods and services and capital inflows.

discuss

10.	If PPP holds
A.	The nominal exchange rate will not change.
B.	The real exchange rate will not change.
C.	Both real and nominal exchange rates will not change.
D.	Both real and nominal exchange will move together
Answer» B. The real exchange rate will not change.

discuss

11.	A spot transaction in the foreign exchange market involves the
A.	Exchange of exports and imports at a specified future date.
B.	Exchange of bank deposits at a specified future date.
C.	Immediate (within two days) exchange of exports and imports.
D.	Immediate (within two days) exchange of bank deposits.
Answer» D. Immediate (within two days) exchange of bank deposits.

discuss

12.	Forward exchange rates
A.	Involve the immediate exchange of bank deposits.
B.	Involve the exchange of bank deposits at some specified future date.
C.	Involve the immediate exchange of imports and exports.
D.	None of the above.
Answer» B. Involve the exchange of bank deposits at some specified future date.

discuss

13.	When the value of the British pound changes from $1.50 to $1.25, the pound has ________ and the dollar has ________.
A.	appreciated; appreciated
B.	depreciated; appreciated
C.	appreciated; depreciated
D.	depreciated; depreciated
Answer» B. depreciated; appreciated

discuss

14.	The foreign exchange market
A.	Is organized as an over-the-counter market in which several hundred dealers stand ready to buy and sell deposits denominated in foreign currencies.
B.	Is very competitive.
C.	Functions no differently from a centralized market.
D.	All of the above.
Answer» D. All of the above.

discuss

15.	In the long run, ________ affect the exchange rate.
A.	relative price levels
B.	tariffs and quotas
C.	productivity
D.	All of the above.
Answer» D. All of the above.

discuss

16.	Exchange rates are determined in
A.	The money market.
B.	The foreign exchange market.
C.	The stock market.
D.	The capital market.
Answer» B. The foreign exchange market.

discuss

17.	The immediate (two-day) exchange of one currency for another is a
A.	Forward transaction.
B.	Spot transaction.
C.	Money transaction.
D.	Exchange transaction.
Answer» B. Spot transaction.

discuss

18.	An agreement to exchange dollar bank deposits for euro bank deposits in one month is a
A.	Spot transaction.
B.	Future transaction.
C.	Forward transaction.
D.	Monthly transaction.
Answer» C. Forward transaction.

discuss

19.	In the foreign exchange market, if the interest rate on foreign deposits increases, holding everything else constant,
A.	The expected return schedule for foreign deposits shifts to the right.
B.	The dollar depreciates.
C.	The foreign currency appreciates.
D.	All of the above.
Answer» D. All of the above.

discuss

20.	Although market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of
A.	Bank deposits denominated in different currencies.
B.	SDRs.
C.	Go
Answer» A. Bank deposits denominated in different currencies.

discuss

21.	Higher tariffs and quotas cause a country’s currency to _____ in the _____ run.
A.	depreciate; short
B.	appreciate; short
C.	depreciate; long
D.	appreciate; long
Answer» D. appreciate; long

discuss

22.	Lower tariffs and quotas cause a country’s currency to _____ in the _____ run.
A.	depreciate; short
B.	appreciate; short
C.	depreciate; long
D.	appreciate; long
Answer» C. depreciate; long

discuss

23.	Anything that increases the demand for foreign goods relative to domestic goods tends to _____ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is _____.
A.	depreciate; lower
B.	depreciate; higher
C.	appreciate; lower
D.	appreciate; higher
Answer» A. depreciate; lower

discuss

24.	If a factor increases the demand for _____ goods relative to _____ goods, the domestic currency will appreciate.
A.	foreign; domestic
B.	foreign; foreign
C.	domestic; domestic
D.	domestic; foreign
Answer» D. domestic; foreign

discuss

25.	An increase in productivity in a country will cause its currency to _____ because it can produce goods at a _____ price.
A.	depreciate; lower
B.	appreciate; lower
C.	depreciate; higher
D.	appreciate; higher
Answer» B. appreciate; lower

discuss

20+ Foreign Exchange Market Solved MCQs

Maintaining a foreign currency account is helpful to

India’s foreign exchange rate system is?

Hedging transaction is indicated by

The acronym SWIFT stands for

Indirect rate in foreign exchange means

The exchange rate is

India is facing continuous deficit in its balance of payments. In the foreign exchange market rupee is expected to

The effect of speculation on exchange rate is

The demand for domestic currency in the foreign exchange market is indicated by the following transactions in balance of payment.

If PPP holds

A spot transaction in the foreign exchange market involves the

Forward exchange rates

When the value of the British pound changes from $1.50 to $1.25, the pound has and the dollar has .

The foreign exchange market

In the long run, ________ affect the exchange rate.

Exchange rates are determined in

The immediate (two-day) exchange of one currency for another is a

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

In the foreign exchange market, if the interest rate on foreign deposits increases, holding everything else constant,

Although market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of

Higher tariffs and quotas cause a country’s currency to _ in the _ run.

Lower tariffs and quotas cause a country’s currency to _ in the _ run.

Anything that increases the demand for foreign goods relative to domestic goods tends to _ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is _.

If a factor increases the demand for _ goods relative to _ goods, the domestic currency will appreciate.

An increase in productivity in a country will cause its currency to _ because it can produce goods at a _ price.

20+ Foreign Exchange Market Solved MCQs

Maintaining a foreign currency account is helpful to

India’s foreign exchange rate system is?

Hedging transaction is indicated by

The acronym SWIFT stands for

Indirect rate in foreign exchange means

The exchange rate is

India is facing continuous deficit in its balance of payments. In the foreign exchange market rupee is expected to

The effect of speculation on exchange rate is

The demand for domestic currency in the foreign exchange market is indicated by the following transactions in balance of payment.

If PPP holds

A spot transaction in the foreign exchange market involves the

Forward exchange rates

When the value of the British pound changes from $1.50 to $1.25, the pound has ________ and the dollar has ________.

The foreign exchange market

In the long run, ________ affect the exchange rate.

Exchange rates are determined in

The immediate (two-day) exchange of one currency for another is a

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

In the foreign exchange market, if the interest rate on foreign deposits increases, holding everything else constant,

Although market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of

Higher tariffs and quotas cause a country’s currency to _____ in the _____ run.

Lower tariffs and quotas cause a country’s currency to _____ in the _____ run.

Anything that increases the demand for foreign goods relative to domestic goods tends to _____ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is _____.

If a factor increases the demand for _____ goods relative to _____ goods, the domestic currency will appreciate.

An increase in productivity in a country will cause its currency to _____ because it can produce goods at a _____ price.

When the value of the British pound changes from $1.50 to $1.25, the pound has and the dollar has .

Higher tariffs and quotas cause a country’s currency to _ in the _ run.

Lower tariffs and quotas cause a country’s currency to _ in the _ run.

Anything that increases the demand for foreign goods relative to domestic goods tends to _ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is _.

If a factor increases the demand for _ goods relative to _ goods, the domestic currency will appreciate.

An increase in productivity in a country will cause its currency to _ because it can produce goods at a _ price.