International Financial Management – Dr.V.

Ramasubramanian
IFM Model Questions

1. Export of goods is called trade in

a. Visible goods
b. Basic goods
c. Invisible goods
d. Non- real goods
Ans- a

2. 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

3. It helps countries to meet deficit in BOP.

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

4. 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

5. 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

6. 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

7. 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

8. 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

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9.. 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

10. 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

11. 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

12 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

13. 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

14. 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

15. 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

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

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17. 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

18. 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. Labour
e. Land
Ans: c

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

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25. 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

26. International Money market is for about

a. 2 year
b. 4 year
c. 1 year
d. 5 year
Ans- c

27. 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

28. 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

29. 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

30. 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

31. 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

32. FATF is located at –

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

33. SARs is
a. Suspicious Activity References
b. Suspicious Anti Reports
c. Suspicious Activity Regularization
d. Suspicious Activity Reports
Ans- d

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34. 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

35. Tax planning is ---------- than tax Avoidance

a. Wider
b. Narrower
c. Slighter
d. b & c both
Ans- a

36. 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

37. 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

38. 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

39. 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

40. International cash cycle does not comprise

a. Collection
b. Disbursement
c. Control
d. Culture
Ans- d

41. 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

42 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

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43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. 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

50. 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

51. Ask quote is for

a. Seller
b. Buyer
c. Hedger
d. Speculator
Ans- A

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52. 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

53. 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

54. 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

55.FATF IS
a. Policy making body
b. international policy Making body
c. Advisory body
d. None of the above
Ans- b

56. FATF deals with

a. International anti-money laundering standards
b. Counter-terrorist financing measures
c. Both a & b
d. Only a
Ans –c

57. FATF is
a. Governmental organisation
b. intergovernmental organisation
c. intra Governmental organisation
d. none of the above
Ans- b

58 The convergence of Indian Accounting standards with IFRS began in

a. Aug-09
b. Apr-11
c. Apr-10
d. Dec-11
Ans- B

59 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

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60. 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

61. more instability in currency is called as

a. country risk
b. financial risk
c. currency risk
d. liquidity risk

62. Foreign bonds issued in Japan are known

a. bulldog bonds
b. dragon bonds
c. Yankee bonds
d. samurai bonds

63. Largest number of buyers and sellers, greater the

a. liquidity
b. speculation
c. hedging
d. forward rate

64. 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

65. 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

66. Simplicity with which bondholders and shareholders can change their investments into cash is known
a. barter
b. hedging
c. arbitrage
d. liquidity

67. 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

68. 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

69. 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

70. which of following causes do investors employ foreign exchange market

a. currency hedging
b. currency speculation
c. currency conversion
d. all of above
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71. in 1944 international accord is recognized as
a. Breton Wood Agreement
b. Exchange Agreement
c. International Trade
d. Fisher Effect

72. 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

73. International Money Market is for about

a. 2 years
b. 3 years
c. 5 years
d. 1 years

74. 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.

75. Gold standard introduced in

a. 1913
b. 1990
c. 1876
d. 1944

76. 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

77. International capital market

a. innovative financial instruments
b. information technology
c. deregulation
d. foreign exchange rates

78. Order cost is cost of the

a. executing order
b. processing order
c. opportunity cost
d. none of these

79. 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

80. Ask quote is for

a. seller
b. buyer
c. hedger
d. speculator

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81. 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

82. A simultaneous purchase and sale of foreign exchange for two different dates
a. currency devalue
b. currency swap
c. currency valuation
d. currency exchange

83. 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

84. 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

85. holding an inventory have

a. buying cost
b. selling cost
c. opportunity cost
d. exchange rate risk

86. 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

87. World
a. interbank market
b. Eurocurrency market
c. securities exchanges
d. over-the-counter market

88. Governments enforce currency limitations to

a. protect a currency from speculators
b. keep resident individuals and businesses from investing in other nations
c. preserve hard currencies to finance trade deficits or repay debts
d. all of above

89. 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

90. 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

91. the transaction cost of trading of financial instruments in centralized market is classified as
a. flexible costs
b. low transaction costs
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c. high transaction costs
d. constant costs

92. 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

93. 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

94. when was IMF established?

a. Dec. 27, 1945
b. Jan. 30, 1947
c. Jan.1, 1946
d. Sept. 24, 1947

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

a. Exchange Controls
b. GATT.
c. Subsidies
d. Quotas.

96. 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)

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

a. IMF
b. WTO
c. World Bank
d. UNO

All the Best

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