International Finance MCQ Question

1 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 Transactions.

2. US dollar was quoted at Rs. 43.25 yesterday and is today quoted at Rs. 43.34. It means-
(a) rupee has appreciated in value.
(b) dollar has appreciated in value,
(c) either rupee has appreciated in value or dollar has depreciated in value.
(d) either rupee has depreciated in value or dollar has appreciated in value

3. Letter of credit transactions are generally governed by the provisions of

(a) Uniform Customs and Procedures for Documentary Credits.
(b) United Conference on Practices for Documentary Credits.
(c) Uniform Customs and Practice for Documentary Credits.
(d) Uniform Code and Procedure for Documentary Credits.

4. A letter of credit for a commercial transaction is

(a) a guarantee by the issuing bank to the exporter that bills drawn by the latter will be met.
(b) undertaking by the issuing bank to the exporter's bank that the exporter's bills will be met by the issuing bank.
(c) undertaking by the issuing bank to the exporter that documents conforming to the requirements of the credit
will be negotiated/paid against by the bank.
(d) None of the above.

5. When a letter of credit does not indicate whether it is revocable or irrevocable, it is treated as
(a) revocable.
(b) irrevocable
(c) revocable or irrevocable at the option of the beneficiary.
(d) revocable or irrevocable at the option of the negotiating bank.

6. A confirmed letter of credit is one

(a) confirmed to be authentic.
(b) confirmed by the importer to be correct.
(c) confirmed by the exporter that he agrees to the conditions.
(d) confirmed by a bank (other than the opening bank) in the exporter’s country.

7 Under the confirmed letter of credit the undertaking of the confirming bank is
(a) In addition to that of the issuing bank
(b) in substitution of the undertaking of the opening bank.
(c) subject to government policies of the exporter country.
(d) none of the above.

8. The responsibility of an advising bank of a letter of credit is to

(a) Verify the genuineness of the letter of credit
(b) negotiate documents under the letter of credit.
(c) negotiate documents under the letter of credit, if the opening bank fails.
(d) all of the above.
 9. Bank of Mumbai receives a bill under letter of credit opened by it. The importer instructs the bank not to
pay because he says the goods received are defective. The bank should
(a) return the bill with the reason 'payment refused'.
(b) seek clarification from the drawer; meanwhile keep the bill with it.
(c) refer the matter to International Chamber of Commerce.
(d) make payment to the negotiating bank since the importer’s reason is untenable.

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

  Operating Exposure

  Transaction exposure

  Translation exposure

  Business risk

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

  Clearing date

  Swap date

  Maturity date

 Value Date

12. In the foreign exchange market, the ________ of one country is traded for the ________ of another country.

  currency; currency

  currency; financial instruments

  currency; goods

  goods; goods

13. The current exchange rate system followed in India is ____.

  gold standard

  fixed exchange rate system

  floating exchange rate system

  managed float exchange rate system

 14. The best form of method of payment for an importer would be -
(a) advance remittance.
(b) letter of credit.
(c) documents against payment.
(d) open account.

15. 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.

16. Consider the following quotation:

Spot $ 1 = Rs.43.39 / 43.42
3-m forward premium = Rs.0.60 / 0.65
The outright forward rates are
a. 42.74 / 42.82
b. 42.79 / 42.84
c. 43.99 / 44.07
d. 44.01 / 44.07

1. The current exchange rate system followed in India is ____.

  gold standard

  fixed exchange rate system

  floating exchange rate system

  managed float exchange rate system

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

  currency devalue
  currency swap

  currency valuation

  currency exchange

3. Hedging is used by companies to:

  Decrease the variability of tax paid

  Decrease the variability of expected cash flows

  Increase the variability of expected cash flows

  Decrease the spread between spot and forward market quotes

4. Derivative securities includes:

  swap contract

  futures contract

  option contract

  All of the above

5. By definition, currency appreciation occurs when:

  the value of all currencies fall relative to gold.

  the value of all currencies rise relative to gold.

  the value of one currency rises relative to another currency.

  the value of one currency falls relative to another currency.

6. If purchasing power parity were to hold even in the short run, then:

  quoted nominal exchange rates should be stable over time.

  real exchange rates should tend to increase over time.

  real exchange rates should be stable over time.

  real exchange rates should tend to decrease over time.

7. In the foreign exchange market, the ________ of one country is traded for the ________ of another country.

  currency; currency

  currency; financial instruments

  currency; goods

  goods; goods

8. A floating exchange rate ____.

  is determined by the national governments involved

  remains extremely stable over long periods of time

  is determined by the actions of central banks

  is allowed to vary according to market forces

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

  Clearing date

  Swap date

  Maturity date

  Value date

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

  Tax exposure

  Translation exposure

  Transaction exposure

  Balance sheet exposure

 11. Which of the methods below may be viewed as most effective in protecting against economic exposure?

  Futures market hedging

  Forward contract hedges

  Geographical diversification

  Money market hedges

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

  Operating Exposure

  Transaction exposure

  Translation exposure

  Business risk

13. Foreign currency forward market is ____.

  An over the counter unorganized market - - ( forwards )

  Organized market without trading

  Organized listed market

  Unorganized listed market

14. An economist will define the exchange rate between two currencies as the:

  Amount of one currency that must be paid in order to obtain one unit of another currency

  Difference between total exports and total imports within a country

  Price at which the sales and purchases of foreign goods takes place

  Ratio of import prices to export prices for a particular country

 15. The Purchasing Power Parity should hold:

  Under a fixed exchange rate regime

  Under a flexible exchange rate regime

  Under a dirty exchange rate regime

  Always

16. Covered interest rate parity occurs as the result of:

  the actions of market-makers

  interest rate arbitrage

  purchasing power parity

  stabilising speculation

17. Arbitrageurs in foreign exchange markets:

  attempt to make profits by outguessing the market

  make their profits through the spread between bid and offer rates of exchange

  need foreign exchange in order to buy foreign goods

  take advantage of the small inconsistencies that develop between markets

18. The forward market is especially well-suited to offer hedging protection against

  translation risk exposure.

  transactions risk exposure.

  political risk exposure.

  taxation.

19. Financial management process deals with ____.

  Investments

  Financing decisions
  Both a and b

  None of the above

20. It is very difficult to interpret news in foreign exchange markets because:

  very little information is publicly available

  most of the news is foreign

  it is difficult to know which news is relevant to future exchange rates

  It is difficult to know whether the news has been obtained legally

1. Which of the following is a legitimate reason for international investment?

A. Dividends from a foreign subsidiary are tax exempt in the United States.

B. Most governments do not tax foreign corporations.

C. There are possible benefits from international diversification.

D. International investments have less political risk than domestic investments.

2. By definition, currency appreciation occurs when

A.  the value of all currencies fall relative to gold.

B. the value of all currencies rise relative to gold.

C. the value of one currency rises relative to another currency.

D. the value of one currency falls relative to another currency.

3. Theory which considers change in exchange rate with fluctuations in inflation rates is classified as

A. liquidated power parity

B. purchasing power parity

C. selling power parity

D. volatile power parity

4. If purchasing power parity were 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.

5. Given a home country and a foreign country, purchasing power parity suggests that:

A. the home currency will appreciate if the current home inflation rate exceeds the current foreign

inflation rate

B. the home currency will depreciate if the current home interest rate exceeds the current foreign

interest rate

C. the home currency will depreciate if the current home inflation rate exceeds the current

foreign inflation rate

D. the home currency will depreciate if the current home inflation rate exceeds the current foreign

interest rate

6. 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 longterm 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

7. In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of

A. domestic rates

B. forward and spot exchange rates

C. forward rate

D. spot rates

8. Rule which states that similar set of goods and services produced in various countries should have equal

price is classified as
 A. law of similar mortgage rate

B. law of one type manufacturing

C. law of similar labor rules

D. law of one price

9. Example of derivative securities includes

A. swap contract

B. option contract

C. futures contract

D. all of above

10. Authority which intervenes directly or indirectly in foreign exchange markets by altering interest rates is

considered as

A. central government

B. centralized stocks

C. central corporations

D. centralized instruments

11. The forward market is especially well-suited to offer hedging protection against

A. translation risk exposure.

B. transactions risk exposure.

C. political risk exposure.

D. taxation.

12. Suppose that the Japanese yen is selling at a forward discount in the forward-exchange market. This

implies that most likely

A. this currency has low exchange-rate risk.

B. this currency is gaining strength in relation to the dollar.

C. interest rates are higher in Japan than in the United States.

D. interest rates are declining in Japan.

Q.1 Global bond market consists of all bonds sold by issued companies, governments, or other firms

A. within their own countries

B. outside their own countries
 C. to London banks
D. to developing nations only

Q.2 more instability in currency is called as

A. country risk
B. financial risk
C. currency risk
D. liquidity risk

Q. 3. Foreign bonds issued in Japan are known

A. bulldog bonds
B. dragon bonds
C. Yankee bonds
D. samurai bonds

Q. 4. Largest number of buyers and sellers, greater the

A. liquidity
B. speculation
C. hedging
D. forward rate

Q. 5. Exchange rate entail delivery of trade currency within two business days know as

A. forward rate
B. future rate
C. spot rate
D. bid rate
Q. 6. Differences in nominal interest rates are removed in exchange rate is

A. fisher effect
B. Leontief paradox.
C. Combined equilibrium theory.
D. purchasing power parity

Q. 7. Simplicity with which bondholders and shareholders can change their investments into cash
is known

A. barter
B. hedging
C. arbitrage
D. liquidity

Q. 8. Eurobonds are admired because

A. they are less risky than traditional bonds

B. European companies are considered very stable
C. of absence of government regulation
D. they are always denominated in euro

Q. 9. Bid quote is for

A. seller
B. buyer
C. hedger
D. speculator

Q. 10. Bid-ask spread in foreign exchange market is the

A. price of currency in foreign exchange market

B. difference between bid and ask quotes for a currency
C. price at which a bank will buy a currency
D. price a bank will pay for a currency

Q. 11. Not aim of international capital market is

A. preserving hard currencies to finance trade deficits

B. reducing cost of money to borrowers
C. reducing investor risk
D. expanding money supply for borrowers
Q. 12 which of following causes do investors employ foreign exchange market
A. Currency hedging
B. currency speculation
C. currency conversion
D. all of above

Q. 13 in 1944 international accord is recognized as

A. Breton Wood Agreement

B. Exchange Agreement
C. International Trade
D. Fisher Effect

Q. 14. If a company agreements today for several future date of real currency exchange, they will be
building use of a

A. stock rate
B. stock rate
C. futures rate
D. forward rate

Q. 15. International Money Market is for about

A. 2 years
B. 3 years
C. 5 years
D. 1 years

Q. 16. Case of foreign exchange

A. Exchange of claims denominated in another currency.

B. exchange of bank deposits
C. Exchange of cash issued by a foreign central bank.
D. All of above.

Q. 17. Gold standard introduced in

A. 1913
B. 1990
C. 1876
D. 1944
Q. 18. Market in which currencies buy and sell and their prices settle on is called the

A. Eurocurrency market
B. international capital market
C. international bond market
D. foreign exchange market

Q. 19. International capital market

A. innovative financial instruments

B. information technology
C. deregulation
D. foreign exchange rates

Q. 20 Order cost is cost of the

A. executing order
B. processing order
C. opportunity cost
D. none of these

Q. 21 International capital market

A. limits available set of lending opportunities

B. increases overall portfolio risk for investors
C. allows investors to reduce risk by holding international securities whose price move independently
D. is easily accessible to everyone

Q. 22. Ask quote is for

A. seller
B. buyer
C. hedger
D. speculator

Q. 23. A firm that purpose to connect sellers and buyers of foreign currency- denominated bank
deposits is entitled

A. a wholesaler
B. a broker
C. a bank
D. an investor

Q. 24 A simultaneous purchase and sale of foreign exchange for two different dates
A. currency devalue
B. currency swap
C. currency valuation
D. currency exchange

Q. 25 if your local currency is in variable form and foreign currency is in fixed form quotation will be:

A. indirect
B. direct
C. local form
D. foreign form
Q. 26 in a quote exchange rate, currency that is to be purchase with another currency is called:

A. liquid currency
B. foreign currency
C. local currency
D. base currency

Q. 27 holding an inventory have

A. buying cost
B. selling cost
C. opportunity cost
D. exchange rate risk

Q. 28. Today, important factor that result in augmentation in international bond market is

A. low interest rates

B. high interest rates
C. moderate interest rates
D. all of above

Q. 29 World

A. interbank market
B. Eurocurrency market
C. securities exchanges
D. over-the-counter market

Q. 30 Governments enforce currency limitations to protect a currency from speculators

A. keep resident individuals and businesses from investing in other nations
B. preserve hard currencies to finance trade deficits or repay debts
C. all of above

Q. 31 in primary markets, the first time issued shares to be publicly traded, in stock markets is considered as

A. traded offering
B. public markets
C. issuance offering
D. initial public offering

Q. 32 The exchange markets and over the counter markets are considered as two types of

A. floating market
B. risky market
C. secondary market
D. primary market

Q. 33 the current market price of common stock is $15 and the conversion rate received on
conversion is $320 to calculate

A. $3,800
B. $2,800
C. $4,800
D. $5,800
Q. 34 the transaction cost of trading of financial instruments in centralized market is classified as

A. flexible costs
B. low transaction costs
C. high transaction costs
D. constant costs

Q. 35 The bonds that are backed by cash flow from project and are sold to finance particular project are
classified as

A. finance bonds
B. revenue bonds
C. financing bonds
D. project bonds

Q. 36 the equation that shows the relationship between expected inflation, real interest rates, and nominal
interest rates is called the

A. interest rate parity equation.

B. Fisher equation.
C. GDP deflator.
D. net inflation index.

Q. 37 which of the following is not an example of a frequently used Euro-instrument?

A. Eurobond
B. Euro note
C. Euro stock
D. Euro commercial paper

Q. 38 when was IMF established?

A Dec. 27, 1945

B Jan. 30, 1947

C Jan.1, 1946

D Sept. 24, 1947

Q. 39 which of the following is NOT a restriction to international trade?

A Exchange Controls

B GATT. (the General Agreement on Tariffs and Trade)

C Subsidies

D Quotas.

Q. 40 Balance of payments of a country includes:

A. Balance of trade B. Capital receipts and payments

C. Saving and investment account D. Both (a) and (b)

Q. 41. It helps countries to meet deficit in balance of payments:

A. IMF B. WTO

C. World Bank D. UNO

Q. 42 Export of goods is called trade in:

A. Visible goods B. Invisible goods

C. Basic goods D. Non-real goods