SUBJECT : INTERNATIONAL FIANACE

1. In the foreign exchange market, the ________ of one country is traded for the ________
of another country.
a) Currency; currency b) currency; financial instruments
c) Currency; goods d) goods; goods

2. If purchasing power parity was to hold even in the short run, then:

a) Real exchange rates should tend to decrease over time;

b) Quoted nominal exchange rates should be stable over time.
c) Real exchange rates should tend to increase over time;
d) Real exchange rates should be stable over time;

3. Interest Rate Parity (IRP) implies that:

a) Interest rates should change by an equal amount but in the opposite direction to
the difference in inflation rates between two countries

b) The difference in interest rates in different currencies for securities of similar risk
and maturity should be consistent with the forward rate discount or premium for
the foreign currency
c) The interest rates between two countries start in equilibrium, any change in the
differential rate of inflation between the two countries tends to be offset over the
long-term by an equal but opposite change in the spot exchange rate

d) In the long run real interest rate between two countries will be equal

e) Nominal interest rates in each country are equal to the required real rate plus
compensation for expected inflation
 4. A forward currency transaction:

a) Is always at a premium over the spot rate

b) Means that delivery and payment must be made within one business day
(USA/Canada) or two business days after the transaction date

c) Calls for exchange in the future of currencies at an agreed rate of exchange

d) Sets the future date when delivery of a currency must be made at an unknown
spot exchange rate

e) None of the above is correct

5. The date of settlement for a foreign exchange transaction is referred to as:

a) Clearing date b) Swap date c) Maturity date d) Value date

e) Transaction date

6. Hedging is used by companies to:

a) Decrease the variability of tax paid

b) Decrease the spread between spot and forward market quotes

c) Increase the variability of expected cash flows

d) Decrease the variability of expected cash flows

e) Increase the variability of tax paid

7. Which of the following is not a type of foreign exchange exposure?

a) Tax exposure b) Translation exposure c) Transaction exposure

d) Balance sheet exposure e) Economic exposure

8. Which of the following is true of foreign exchange markets?

 a) The futures market is mainly used by hedgers while the forward market is mainly
used for speculating.

b) The futures market and the forward market are mainly used for hedging.

c) The futures market is mainly used by speculators while the forward market is
mainly used for hedging.

d) The futures market and the forward market are mainly used for speculating.

9. Which of the following is not an interest rate derivative used for interest rate
management?

a) Swap b) Cap c) Floor d) Interest rate guarantee

e) All of the above are interest rate derivatives

10. The impact of Foreign exchange rate on firm is called as

a) Operating Exposure b) Transaction exposure

c) Translation exposure d) Business risk

11. Foreign currency forward market is

a) An over the counter unorganized market

b) Organized market without trading

c) Organized listed market d) Unorganized listed market

12. If transaction exposures are in same dates, then it can be hedged

a) By purchasing single forward contract

b) By purchasing multiple forward contract

c) Cannot be hedged by forward contracts d) None of the above

13. The exchange rate is the

 a) Total yearly amount of money changed from one country’s currency to
another country’s currency.

b) Total monetary value of exports minus imports

c) Amount of country’s currency which can exchanged for one ounce of gold

d) Price of one country’s currency in terms of another country’s currency

14. Exchange rates

a) Are always fixed

b) Fluctuate to equate the quantity of foreign exchange demanded with the quantity
supplied

c) Fluctuate to equate imports and exports

d) Fluctuate to equate rates of interest in various countries

15. An arbitrageur in foreign exchange is a person who

a) Earns illegal profit by manipulating foreign exchange

b) Causes differences in exchange rates in different geographic markets

c) Simultaneously buys large amounts of a currency in one market and sell it in another
market

d) None of the above

16. A speculator in foreign exchange is a person who

a) Buys foreign currency, hoping to profit by selling it a higher exchange rate at some later
date

b) Earns illegal profit by manipulation foreign exchange

c) Causes differences in exchange rates in different geographic markets

d) None of the above

17. The Purchasing Power Parity (PPP) theory is a good predictor of

a) All of the following:

b) The long-run tendencies between changes in the price level and the exchange rate of two
countries

c) Interest rate differentials between two countries when there are strong barriers preventing
trade between the two countries

d) Either b or c

18. According to the Purchasing Power Parity (PPP) theory,

a) Exchange rates between two national currencies will adjust daily to reflect price
level differences in the two countries

b) In the long run, inflation rates in different countries will equalize around the
world

c) In the long run, the exchange rates between two national currencies will reflect
price level differences in the two countries

d) None of the above

19. A simultaneous purchase and sale of foreign exchange for two different dates is called

a) Currency devalue b) Currency swap

c) Currency valuation d) Currency exchange

20. The Purchasing Power Parity should hold:

a) Under a fixed exchange rate regime

b) Under a flexible exchange rate regime

c) Under a dirty exchange rate regime

d) Always
21. A/An ________ is an agreement between a buyer and seller that a fixed amount of one
currency will be delivered at a specified rate for some other currency)

a) Eurodollar transaction b) import/export exchange

c) Foreign exchange transaction d) interbank market transaction

22. Which of the following may be participants in the foreign exchange markets?

a) bank and nonbank foreign exchange dealers

b) Central banks and treasuries

c) Speculators and arbitragers

d) All of the above

23. The foreign direct investment includes

A) Intellectual Property B) Human Resource
C) Tangible Good D) Intangible Goods

24. The three disputes of FDI are over

A) Concern B) Interest
C) Regard D) Hobby

25. More expansion of foreign direct investment can boost

A) Money circulation B) Demand
C) Employment D) Unemployment

26. When a country is specialized in particular goods and then trade with other countries is
called
A) Agreement B) Interdependence
C) Correlation D) Dependence
27. IMF is firm of

A. 190 Member Countries B. 182 Member Countries

C. 186 Member Countries D. 183 Member Countries

28. Determination of forward rates is explained by

A. Purchasing power parity theory B. Uncovered interest arbitrage

C. Demand and Supply for spot currency D. demand and supply of currency in future

29. Which of the following institutions cannot be included in the international financial and
monetary system?

A. WTO B. Bank for International Settlements

C. IMF D .World Bank

30. 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

31. International Monetary Fund is headquartered in

A. Washington, United States B. New York City, United States

C. Geneva, Switzerland D. Avenue Du Mont Blanc, Switzerland

32. For contingency exposure of foreign exchange, the best derivative that can be used to
hedge is

A. Forwards B. Futures

C. Options D. Swaps

33. 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

34. Two tier exchange rate system is a form of

A. Different exchange rate B. Fixed rate

C. Multiple exchange rate D. Flexible rate

35. 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

36. India s foreign exchange rate system is?

A. Fixed target B. Managed float

C. Free float D. Fixed and Float

37. Type of risk in which value of liabilities and assets is affected by exchange rate is classified
as

A. economic rates B. foreign exchange risk

C. selling rate D. buying rates

38. The primary component of the current account is the.

A. balance of trade B. balance of money market flows

C. balance of capital market flows D. unilateral transfers

39. Exchange markets and over counter markets are considered as two types of

A. floating market B. risky market

C. secondary market D. primary market

40. Financial account was earlier called as

A. capital account B. current account

C. factor income D. liability account

41. The market where long term securities (shares, bonds, etc. are bought and sold is called as

A. money market B. capital market

C. primary market D. secondary market

42. Which exchange rate theory focuses on the inflation exchange rate relationship?

A. Interest rate parity B. International Fisher Effect

C. Purchasing power parity D. Traditional Model

43. Long-term securities denominated in two currencies is called as

 A. Euro bond B. Dual currency bonds C. Foreign bonds D. Euro dollar dep

44. Foreign exchange transactions involve monetary transactions

A. among resident of the same country

B. between residents of two countries only

C. between residents of two or more countries

D. among residents of at least three countries

45. Banks, mutual funds and insurance companies are considered as

A. major supplier’s B. major investors

C. major portfolio holder’s D. major rates decider

46. Foreign bonds, sovereign bonds and Eurobonds are classified as types of

A. local markets B. state markets

C. international markets D. national markets

47. Markets in which bonds are traded and issued are classified as

A. corporate markets B. treasury markets

C. bond markets D. municipal markets

48. Bill of Lading is issued by the:

A. captain of the vessel B. shipping company

C. customs authorities’ D. consignor

 49. The EXIM policy 2002-2007 coincides with the:

A. 7th Five year plan B. 8th Five year plan

C. 9th Five year plan D. 10th Five year plan

50. The components of Balance of Payment include.

A. Current and Capital Account

B. Current account and official reserves

C. Capital Account and Official reserves

D. Current account, capital account and official reserves

51. What is the IMF's primary objective?

A. The overall promotion of world trade

B. The fixation of the value of world currencies

C. The promotion of free trade

D. The promotion of its policies in certain countries around the world

52. The major players in the foreign exchange market are.

A. commercial banks B. corporate

C. exchange brokers D. central bank of the country and the Central Government

53. What basis the exchange rates are determined

A. supply B. Demand C. Demand and supply D. Forex

54. The balance of payments always has a zero balance. This is caused by.

A. the working of the foreign exchange market

B. by including errors and omissions

C. the system of double entry bookkeeping

D. by including reserves and related items

55. Net exports refer to.

A. total exports minus total imports B. total imports minus total exports

C. exports of merchandise minus imports of merchandised

D. total exports of capital minus depreciation

56. Exchange rate of foreign currency fluctuate day to day because of

A. demand and supply B. increased maturity

C. decreased maturity D. instrument availability

57. International Monetary Fund formal existence came into being in

A.12-05-44 B.27-07-44

C.27-12-45 D.27-09-45