McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Commerce in Banking and Insurance (B.Com Banking and Insurance) .
| 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. | |
| 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 | |
| 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. | |
| 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. | |
| 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. | |
| 6. |
The maxim 'buy low; sell high' is applicable for |
| A. | Quotation of Pound-Sterling. |
| B. | Indirect rates. |
| C. | Direct rates. |
| D. | USDOLLARS. |
| Answer» C. Direct rates. | |
| 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 against countries with negative balance of payment. |
| Answer» A. Depreciate. | |
| 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. | |
| 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. | |
| 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. | |
| 11. |
The forward US dollar is quoted at premium against Indian Rupees. This implies |
| A. | Money market rates are higher in India than in the US. |
| B. | Money market rates are lower in India than in the US. |
| C. | Market yield is higher in US than in India. |
| D. | Dollar has a better value than Indian Rupee. |
| Answer» A. Money market rates are higher in India than in the US. | |
| 12. |
Determination of forward rates is explained by |
| A. | Uncovered interest arbitrage. |
| B. | Purchasing power parity theory. |
| C. | Demand and Supply for spot currency. |
| D. | None of the above. |
| Answer» D. None of the above. | |
| 13. |
According to International Fisher Effect |
| A. | Forward Premium for a currency indicates its depreciation in future. |
| B. | Forward Premium for a currency indicates its appreciation in future. |
| C. | Forward Rates and spot rates are not linked |
| D. | Forward Rates are based on expected future spot rates. |
| Answer» B. Forward Premium for a currency indicates its appreciation in future. | |
| 14. |
Cash and carry arbitrage explains the determination of |
| A. | Forward Rates for currencies. |
| B. | Spot rates for currencies. |
| C. | Both forward and spot rates for currencies. |
| D. | Penalty for non-execution of forward contracts. |
| Answer» A. Forward Rates for currencies. | |
| 15. |
LIBOR is: |
| A. | the interest rate commonly charged for loans between banks. |
| B. | the average inflation rate in European countries. |
| C. | the maximum loan rate ceiling on loans in the international money |
| D. | the maximum interest rate offered on bonds that are issued in London. |
| Answer» D. the maximum interest rate offered on bonds that are issued in London. | |
| 16. |
The margin for a currency future should be maintained with the clearinghouse by |
| A. | The buyer. |
| B. | The seller. |
| C. | Both the buyer and the seller. |
| D. | Either the buyer or the seller as per the agreement between them. |
| Answer» C. Both the buyer and the seller. | |
| 17. |
The marking to market in respect of a currency future refers to |
| A. | Putting up for sale specific lot of futures. |
| B. | Adjusting the margin money of buyer and seller to reflect the current value of futures |
| C. | Quoting rates for different maturities. |
| D. | Allotting futures among different brokers. |
| Answer» B. Adjusting the margin money of buyer and seller to reflect the current value of futures | |
| 18. |
For the balance kept in the margin account for futures |
| A. | Interest is paid at riskless rate. |
| B. | Interest is paid at LIBOR rate |
| C. | Interest is paid for the surplus over the required minimum. |
| D. | No interest is paid. |
| Answer» D. No interest is paid. | |
| 19. |
A feature of currency option that distinguishes it from other derivatives is |
| A. | It carries premium to be paid up front. |
| B. | It is optional to enter into the contract. |
| C. | The buyer has only right, but no obligation to execute the contract |
| D. | The seller has the right, but no obligation to execute the contract. |
| Answer» C. The buyer has only right, but no obligation to execute the contract | |
| 20. |
The following statement with respect to currency option is wrong |
| A. | Call option will be used by exporters. |
| B. | Put option gives the buyer the right to sell the foreign currency. |
| C. | Foreign currency- Rupee option is available in India. |
| D. | An American option can be executed on any day during its currency. |
| Answer» A. Call option will be used by exporters. | |
| 21. |
For contingency exposure of foreign exchange, the best derivative that can be used to hedge is |
| A. | Forwards. |
| B. | Futures. |
| C. | Options. |
| D. | Swaps. |
| Answer» C. Options. | |
| 22. |
The strike price under an option is |
| A. | The price at which the option is auctioned |
| B. | The exchange rate which the currencies are agreed to be exchanged under the contract |
| C. | . Lower of the market price and the agreed price |
| D. | None of the above |
| Answer» B. The exchange rate which the currencies are agreed to be exchanged under the contract | |
| 23. |
An option at-the-money when |
| A. | The strike price is greater than the spot price, in the case of a call option. |
| B. | The strike price is greater than spot price, in the case of a put option. |
| C. | The option has a ready market. |
| D. | The strike price and the spot price are the same. |
| Answer» D. The strike price and the spot price are the same. | |
| 24. |
Where an option is out of the money |
| A. | The premium will be refunded to the buyer. |
| B. | The buyer is unable to take up the contract |
| C. | The seller gains to the extent of the premium receiv |
| Answer» C. The seller gains to the extent of the premium receiv | |
| 25. |
Banks permitted to run option book is required to fulfill the condition of |
| A. | Continuous profit for at least three years. |
| B. | Minimum CRAR of 9%. |
| C. | Minimum net worth of Rs.200 crores. |
| D. | All the above. |
| Answer» D. All the above. | |
| 26. |
Zero coupon swap is an arrangement |
| A. | Involving exchange of zero coupon bonds. |
| B. | Whereby only one party makes payment periodically. |
| C. | Whereby one of the counter-parties makes payment in lump sum instead of periodically. |
| D. | None of the above. |
| Answer» C. Whereby one of the counter-parties makes payment in lump sum instead of periodically. | |
| 27. |
The acronym CIRCUS stands for |
| A. | Current Interest Rate Swap. |
| B. | Circular Currency Swap. |
| C. | Combined Income Range Currency Swap. |
| D. | Combined Interest Rate and Currency Swap. |
| Answer» D. Combined Interest Rate and Currency Swap. | |
| 28. |
A forward rate agreement helps the user to |
| A. | Fix the cost of borrowing. |
| B. | Reduce the cost of borrowing. |
| C. | Cover exchange risk |
| D. | Avail tax benefit |
| Answer» A. Fix the cost of borrowing. | |
| 29. |
The swap arrangement where principal amounts are not exchanged, but periodical payments will be a |
| A. | Currency swap |
| B. | Cross currency interest swap |
| C. | Interest rate swap. |
| D. | Non-Financial swap. |
| Answer» C. Interest rate swap. | |
| 30. |
An interest rate cap is a series of |
| A. | Call options |
| B. | Put options. |
| C. | Periodical payments |
| D. | Differential payments. |
| Answer» A. Call options | |
| 31. |
FRAs can’t+ be used for |
| A. | Hedging. |
| B. | Arbitraging. |
| C. | Speculating. |
| D. | Any of the Above. |
| Answer» D. Any of the Above. | |
| 32. |
The true cost of hedging transaction exposure by using forward market is |
| A. | Difference between agreed rate and spot rate at the time of entering into contract. |
| B. | Difference between agreed rate and spot rate on the due date of contract |
| C. | Forward premium / discount annualiz |
| Answer» B. Difference between agreed rate and spot rate on the due date of contract | |
| 33. |
Hedging with options is best recommended for |
| A. | Hedging receivables. |
| B. | Hedging payables. |
| C. | Hedging contingency exposures. |
| D. | Hedging foreign currency loans |
| Answer» C. Hedging contingency exposures. | |
| 34. |
A firm operating in India cannot hedge its foreign currency exposure through |
| A. | Forwards. |
| B. | Futures. |
| C. | Options. |
| D. | None of the above. |
| Answer» B. Futures. | |
| 35. |
Foreign currency exposures can be avoided by |
| A. | Entering into forward contracts. |
| B. | Denominating the transaction in domestic currency. |
| C. | Exposure netting |
| D. | Maintaining foreign currency accounts. |
| Answer» B. Denominating the transaction in domestic currency. | |
| 36. |
The following method does not result in sharing of an exchange risk between importer and exporter |
| A. | Denominating in a third currency. |
| B. | Denominating partly in importer's currency and partly in exporter's currency. |
| C. | Entering a exchange rate clause in the contract. |
| D. | Denominating in domestic currency. |
| Answer» D. Denominating in domestic currency. | |
| 37. |
Leading refers to |
| A. | Advancing of receivables. |
| B. | Advancing of payables. |
| C. | Advancing payments either receivables or payables. |
| D. | Advancing of receivables and delaying of payables. |
| Answer» C. Advancing payments either receivables or payables. | |
| 38. |
Translation exposure arises in respect of items translated at |
| A. | Current rate. |
| B. | Historical rate. |
| C. | Average rate. |
| D. | All of the above. |
| Answer» A. Current rate. | |
| 39. |
Translation loss is |
| A. | A loss to the parent company. |
| B. | A loss to the subsidiary company. |
| C. | A notional loss. |
| D. | An actual loss. |
| Answer» C. A notional loss. | |
| 40. |
The translation exposure is positive when |
| A. | Exposed assets are lesser than exposed liabilities. |
| B. | Exposed liabilities are lesser than exposed assets. |
| C. | The exposure results in profit. |
| D. | There are no liabilities. |
| Answer» B. Exposed liabilities are lesser than exposed assets. | |
| 41. |
For the purpose of translations, current rate refers to |
| A. | The rate current at the time of transaction. |
| B. | The rate prevailing on the date of the balance sheet. |
| C. | The rate prevailing on the date of preparation of the balance sheet. |
| D. | The spot rate |
| Answer» B. The rate prevailing on the date of the balance sheet. | |
| 42. |
Exposed assets are those translated at |
| A. | Historical rate. |
| B. | Average rate. |
| C. | Current rate. |
| D. | Current rate or average rate. |
| Answer» C. Current rate. | |
| 43. |
This is not established method of translation |
| A. | Current rate method. |
| B. | Monetary/Non-monetary method. |
| C. | Temporary meth |
| D. | D. Current/Non-current method |
| Answer» C. Temporary meth | |
| 44. |
A positive exposure will lead to when the currency of the subsidiary company appreciates. |
| A. | Translation gain. |
| B. | Translation loss |
| C. | Exchange gain. |
| D. | Exchange loss. |
| Answer» A. Translation gain. | |
| 45. |
Translation loss may occur when |
| A. | Exposed assets exceed exposed liabilities and foreign currency appreciates. |
| B. | Exposed assets exceed exposed liabilities and foreign currency depreciates. |
| C. | The subsidiary's balance sheet shows a loss. |
| D. | The foreign currency depreciates. |
| Answer» B. Exposed assets exceed exposed liabilities and foreign currency depreciates. | |
| 46. |
The following method cannot be used for managing translation exposure |
| A. | Forward contract. |
| B. | Option contract |
| C. | Exposure netting. |
| D. | Leading and lagging. |
| Answer» B. Option contract | |
| 47. |
Economic exposure does not deal with |
| A. | Changes in real exchange rates. |
| B. | Future cash flow of the firm |
| C. | Expected exchange rate changes. |
| D. | None of the above. |
| Answer» C. Expected exchange rate changes. | |
| 48. |
The __________ refers to the orderly relationship between spot and forward currency exchange rates and the rates of interest between countries. |
| A. | one-price rule |
| B. | interest-rate parity |
| C. | purchasing-power parity |
| D. | exchange-power parity |
| Answer» B. interest-rate parity | |
| 49. |
The __________ is especially well suited to offer hedging protection against transactions risk exposure. |
| A. | forward market |
| B. | spot market |
| C. | transactions market |
| D. | inflation-rate market |
| Answer» A. forward market | |
| 50. |
A multinational company that is faced with mild interference up to complete confiscation of all assets is encountering__________. |
| A. | translation risk exposure |
| B. | transactions risk exposure |
| C. | political risk exposure |
| D. | a very bad day |
| Answer» C. political risk exposure | |
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