Modern education society’s

Neville Wadia Institute of Management Studies & Research, Pune 01

MCQ Questions of International Finance (305 FIN) Faculty : Dr. Kirti Lalwani

Q.1 The currency used to Buy imported goods is?

a) The Buyer's home currency

b) The seller’s home currency
c) Special drawing rights
d) The currency of a third country

Ans- a

Q.2 Export of goods is called trade in-

a) Visible goods
b) Basic goods
c) Invisible goods
d) Non- real goods

Ans- a

Q.3 Which one of the following is the SDR given by the IMF to its member countries?

a) Cold Money
b) Hot money
c) Paper Money
d) None of these

Ans- c

Q. 4 The Bretton Woods Accord-

a) Of 1879 created a gold standard as the basis of international finance

b) Of 1914 formulated a new international monetary system after the collapse of gold
standard
c) Of 1944 formulated a new international monetary system after the collapse of gold
standard
d) None of the above

Ans- c

Q.5 It helps countries to meet deficit in BOP.

a) World Bank
b) WTO
 c) IMF
d) UNO
Ans- c

Q.6 Under a gold standard-

a) a nation’s currency can be traded for gold at a fixed rate

b) a nation’s central bank or monetary authority has absolute control over its money
supply
c) new discoveries of gold have no effect on money supply or prices
d) a & b

Ans- a

Q.7 Under the Bretton woods system, the us dollar was pegged to gold at-

a) 30 $ per ounce
b) 35$ per ounce
c) 25$ per ounce
d) 45 $ per ounce

Ans- b

Q.8 Dumping refers to-

a) Reducing tariffs
b) Sale of goods abroad at low a price, below their cost and price in home market
c) Buying goods at low prices abroad and selling at higher prices locally
d) Expensive goods selling for low prices

Ans- b

Q.9 What is unilateral transfer in BOP?

a) Visible items
b) Invisible items
c) Gifts
d) Income receipts & payments

Ans- C

Q.10 International finance is concerned with-

a) Exchange rates of currencies

b) Monetary systems of the world
c) Foreign direct investment (FDI)
d) All of the above

Ans- D
Q.11 Market in which currencies buy and sell and their prices settle on is called the-

a) International bond market

b) International capital market
c) Foreign exchange market
d) Eurocurrency market

Ans- c

Q.12 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

Ans-c

Q.13 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
Ans- A

Q.14 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

Ans- B

Q.15 The forward market is especially well-suited to offer hedging protection against –

a) Translation risk exposure

b) Transaction risk exposure
c) Political risk exposure
d) Taxation
Ans- B
Q.16 Interest-rate parity refers to the concept that, where market imperfections are few,

a) the same goods must sell for the same price across countries.
b) interest rates across countries will eventually be the same.
c) there is an offsetting relationship between interest rate differentials and differentials in
the forward spot exchange market.
d) there is an offsetting relationship provided by costs and revenues in similar market
Environments

Ans- c

Q.17 under fixed exchange rate system , the currency rate in the market is maintained
through-

a) Rationing of foreign exchange

b) Official intervention
c) Centralising all foreign exchange operations
d) None of the above

Ans- B

Q.18 Foreign exchange market is considered as 24 hours’ market because-

a) It is open all through the day

b) All transactions are to be settled within 24 hours
c) Due to geographical dispersal at least one market is active at any point of time.
d) Minimum 24 hours must lapse before any transaction is settled

Ans- c

Q.19 The statutory basis for administration of foreign exchange in India is?

a) Foreign Exchange Regulation Act, 1973

b) Foreign Exchange Management Act , 1999
c) Exchange control Manual
d) Conservation of Foreign Exchange & prevention of Smuggling Act.

Ans- b

Q. 20 The International Fisher equation states that...

a) domestic inflation rates will tend to equal foreign inflation rates.

b) domestic real interest rates will tend to equal foreign real interest rates.
c) the expected exchange rate depreciation of the domestic currency is equal to the
future inflation differential (foreign minus domestic inflation).
d) the difference between the bid-ask spread for an exchange rate is equal to the future
inflation differential (foreign minus domestic inflation).
Ans- b
Q.21 Who maintains the foreign exchange reserves in India ?
a) Reserve Bank of India

b) State Bank of India

c) Ministry of Finance, Government of India

d) Export-Import Bank of India

Answer : a

Q.22 Which one of the following is implied by interest rate parity?

a) Interest rates are at par in all the countries.

b) Movements in spot rates and forward rates in the foreign exchange market are same.

c)Potential holders of foreign currency deposits do not view these deposits as a desirable
asset.

d)A condition that the expected returns on deposits in any two countries are equal when
measured in the same currency.

Answer : d

Q.23 Interest-rate parity refers to the concept that, where market imperfections are
few,

a) the same goods must sell for the same price across countries.
b) interest rates across countries will eventually be the same.
c) there is an offsetting relationship between interest rate differentials and differentials in
the forward spot exchange market.
d) there is an offsetting relationship provided by costs and revenues in similar market
environments.

Ans- C

Q.24 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.

Ans- c
Q 25 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

Ans- c

Q.26 According to the Purchasing Power Parity theory, the value of a currency should
remain constant in terms of what it can buy in different countries of

a. Bonds

b. Stocks

c. Goods

d. Labor

e. Land

Ans: c

Q.27 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

Ans- a

Q.28 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.

Ans- C

Q.29 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;

Ans- d

Q. 30 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

Ans- d
 Unit III,IV & V

Q.31 The forward market is especially well-suited to offer hedging protection against-

a) transactions risk exposure.

b) Translation Risk Exposure
c) political risk exposure.
d) taxation.

Ans – a

Q. 32 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

Ans- D

Q.33 ADR/GDR can be issued By-

a) only by listed companies

b) by listed or unlisted companies both
c) only by companies listed on BSE
d) none of the above

Ans- a

Q. 34 All of the following are hedges against exchange-rate risk EXCEPT-

a) balancing monetary assets and liabilities.

b) use of spot market.
c) foreign-currency swaps.
d) adjustment of funds commitments between countries

Ans – b

Q.35 A depository receipt-

a) is a non-negotiable instrument
b) represents shares issued in local currency
c) is issued by custodian
 d) is issued for safe custody of articles

Ans- B

Q.36 International Money market is for about-

a) 2year
b) 4 year
c) 1 year
d) 5year

Ans- c

Q. 37 The feature of currency option is that distinguishes it from other derivatives is-

a) It carries premium to be paid upfront

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

Ans- C

Q.38 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

Ans- c

Q.39 The Bond does not pay interest & issued at a price lower than its Reimbursement value
is called as-

a) Coupon Bond
b) Zero Coupon bond
c) Domestic bond
d) Euro Bond

Ans- B

Q. 40 Long term securities denominated in two currencies is called as-

a) Foreign bonds
b) Euro Dollar deposits
c) Dual Currency bonds
d) Euro Bond

Ans- c
Q. 41 FATF means-

a) Financial accounting Trade Federation

b) Financial association of traders in France
c) Foreign Authority Traders Federation
d) Financial Action Task Force

Ans- d

Q. 42 FATF is located at –

a) Mumbai
b) New York
c) Paris
d) Japan
Ans- c

Q.43 SARs is-

a) Suspicious Activity References

b) Suspicious Anti Reports
c) Suspicious Activity Regularization
d) Suspicious Activity Reports

Ans- d

Q. 44 what is CFT under KYC/AML Regulations-

a) Combating the financing of terrorism

b) Calculating Financial terrorism
c) Commission of financial terrorism
d) Committee on financial Terrorism

Ans- a

Q.45 Tax planning is ---------- than tax Avoidance-

a) Wider
b) Narrower
c) Slighter
d) b & c both

Ans- a

Q.46 Money Laundering Means-

a) Conversion of illegal money into legitimate money

b) conversion of Cash into gold to make it legitimate
c) Conversion of Assets into cash to make them legitimate
d) conversion of assets to invest in Laundromat

Ans- a
Q.47 According to IAS 21, a foreign operation can be-

a) A subsidiary
b) a branch
c) a joint venture
d) all of the above

Ans- d

Q. 48 which of the following statement is true?

a) Exchange exposure leads to Exchange risk

b) Exchange risk leads to exchange exposure
c) Exchange exposure & exchange risk are unrelated
d) None of the above

Ans- a

Q.49 which of the following is not considered as strategy of International cash Management-

a) Use of Budgeting tool

b) Control the currency option
c) FII
d) Select to transfer online

Ans- C

Q. 50 International cash cycle does not comprise-

a) Collection
b) Disbursement
c) Control
d) Culture

Ans- d

Q51 The price at which one can enter into a contract today to buy or sell a currency 30 days
from now is called a

a) Reciprocal exchange rate.

b) Effective exchange rate.
c) Exchange rate option.
d) Forward exchange rate.
e) Multilateral exchange rate.

Ans: d

Q.52 Forward exchange rates are useful for those who wish to
 a. Protect themselves from the risk that the exchange rate will change before a
transaction is completed.
b. Gamble that a currency will rise in value.
c. Gamble that a currency will fall in value.
d. Exchange currencies at a point in time in the future.
e. All of the above.

Ans: e

Q. 53 . 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

Ans- e

Q.54 The impact of Foreign exchange rate on firm is called as

a) Operating Exposure

b) Transaction exposure

c) Translation exposure

d) Business risk

Ans- a

Q.55 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

Ans- a

Q.56 Forward premium / differential depends upon

a) Currencies fluctuation
b) Interest rate differential between two countries

c) Demand & supply of two currencies

d) Stock market returns

Ans- b

Q. 57 Interest rate swaps are usually possible because international financial markets in
different

countries are

a) Efficient

b) Perfect

c) Imperfect

d) Both a & b

Ans- c

Q.58 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

Ans- B

Q.59 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

Ans- c

Q.60 A speculator in foreign exchange is a person who

a) buys foreign currency, hoping to profit by selling it a 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

Ans- a

Q.61 Ask quote is for

a) Seller

b) Buyer

c) Hedger

d) Speculator

Ans- A

Q.62 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

Ans- b

Q.63 If your local currency is in variable form and foreign currency is in fixed form the
quotation

will be:

a) Indirect

b) Direct

c) Local form

d) Foreign form

ans-b

Q.64 In a quote exchange rate, the currency that is to be purchase with another currency is
called the

a) liquid currency

b) foreign currency
c) local currency

d) base currency

Ans-d

Q.65 Which of the following is NOT a criticism of a flexible exchange rate system?

a) Flexible exchange rates tend to be variable and therefore cause more uncertainty

b) Flexible exchange rate systems require discipline on the part of central banks that may not
be forthcoming

c) Under flexible exchange rates, trading countries tend to rely more heavily upon tariffs and
other restrictions

d) The flexible exchange rate system reduces the power of fiscal policy

Ans- c

Q.66 FATF IS-

a) Policy making body

b) International policy Making body
c) Advisory body
d) None of the above

Ans- b

Q.67 FATF deals with

a) International anti-money laundering standards

b) Counter-terrorist financing measures
c) Both a&b
d) Only a
Ans –c

Q.68 FATF is-

a) Governmental organisation
b) intergovernmental organisation
c) intra Governmental organisation
d) none of the above

Ans- b

Q. 69 The convergence of Indian Accounting standards with IFRS began in-

a) Aug-09
b) Apr-11
 c) Apr-10
d) Dec-11

Ans- B

Q. 70 The global key professional accounting body is —

a) The International Accounting Standards Board

b) The Financial Accounting Standards Board
c) The Institute of Chartered Accountants of India
d) The International Accounting Standards Committee
Ans- a

All the Best

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