Mid Term Assessment

The due date for submitting this assignment has passed.

Due on 2023-10-28, 23:59 IST.

Assignment submitted on 2023-09-

08, 17:32 IST
1 point
Spot transaction will be settled ____________ from the trade date.
One week
2 days
1 day
0 days
Yes, the answer is correct.
Score: 1
Accepted Answers:
2 days

1 point
Purchasing Power Parity states exchange rates between any two
currencies will adjust to reflect the change in ______________ in the
domicile country of these two currencies.
money supply
price levels
interest rates
GDP
Yes, the answer is correct.
Score: 1
Accepted Answers:
price levels
1 point
The word ‘Nominal’ in the ‘Nominal Exchange Rate’ denotes the
____________ exchange value of one currency against another.
Absolute
Relative
Numerical
Imaginary
Yes, the answer is correct.
Score: 1
Accepted Answers:
Numerical

1 point
When both exports and imports are invoiced in a foreign currency and
exports significantly exceed imports, the domestic currency will
_________ with respect to the foreign currency.
Appreciate
Depreciate
Remain Constant
Equalise
Yes, the answer is correct.
Score: 1
Accepted Answers:
Appreciate

1 point
A high Cash flow Index represents a ___________ country risk.
higher
lower
zero
infinite
No, the answer is incorrect.
Score: 0
Accepted Answers:
lower
1 point
When a certain percentage of exchange rate impact is not ‘passed
through’ and it has to be absorbed by the exported as
______________________
increase in costs
decrease in sales volume
reduction in operating margin
increase in operating margin
Yes, the answer is correct.
Score: 1
Accepted Answers:
reduction in operating margin

1 point
The real flow of goods in an economy can be represented using the
formula.
Industry output + Total Exports = Domestic Consumption + Total
Imports
Industry output + Total Imports = Domestic Consumption and
Investment + Total Exports
Industry output + Total Exports = Domestic Consumption and
Investment + Total Imports
Industry output + Total Exports = Domestic and foreign Consumption
and Investment + Total Import
No, the answer is incorrect.
Score: 0
Accepted Answers:
Industry output + Total Imports = Domestic Consumption and
Investment + Total Exports

2 points
Interest rate parity reflects exchange rate movements in the
_______________ while purchasing power parity captures exchange rate
movements in the ____________.
long-term ….. short-term
medium-term ….. long-term
short-term ….. long-term
short-term ….. medium-term
Yes, the answer is correct.
Score: 2
Accepted Answers:
short-term ….. long-term

2 points
Speculators seek profits by _____________ future _____________ in
exchange rates.
yearning for …. stability
speculating ….. movement
speculating on …. stability
hedging on …. positions
Yes, the answer is correct.
Score: 2
Accepted Answers:
speculating ….. movement

2 points
Balance of Payments (BoP) is a __________ statement of Country’s inflow
and outflow of __________ currency for a ___________ period.
detailed...foreign...long
detailed...domestic...long
summary...foreign...specific
summary...domestic...specific
Yes, the answer is correct.
Score: 2
Accepted Answers:
summary...foreign...specific

2 points
REER _________ 100 denotes the currency in overvalued and _________
100 denotes the currency is undervalued with respect to all currencies
in its currency basket.
above …. below
below ….. above
equal to ….. greater than
equal to …. lesser than
Yes, the answer is correct.
Score: 2
Accepted Answers:
above …. below

2 points
When a country’s currency appreciates with respect to other
currencies, other countries goods will cost ____________ hence imports
into that country could be __________ impacted.
less, adversely
more, favourably
less, favourably
more, adversely
No, the answer is incorrect.
Score: 0
Accepted Answers:
less, favourably

2 points
EUR/USD 1.1435 denotes ____________ as the price currency and
___________ as the base currency.
EUR… JPY
JPY… USD
EUR … USD
USD…. EUR
Yes, the answer is correct.
Score: 2
Accepted Answers:
USD…. EUR

2 points
Exchange rate volatilities could be exasperated if ______________ and
________________ are permitted to trade freely in the foreign exchange
market.
Saints and Rogues
Speculators and Arbitragers
Saints and Speculators
Rogues and Arbitragers
Yes, the answer is correct.
Score: 2
Accepted Answers:
Speculators and Arbitragers

3 points
If a ton of steel costs USD 1500 in the United States and EUR 1000 in
Germany, then as per the ‘law of one price’, the exchange rate
EUR/USD should be ___________.
1.5
1.66
1.87
2.33
Yes, the answer is correct.
Score: 3
Accepted Answers:
1.5

3 points
An investor has two choices:

(1) Invest USD 100,000 in the USD money market for 3 months at 4%
per annum.
(2) Convert USD 100,000 to EUR at spot rate of EUR/USD 1.25, invest in
the German money market at 6% per annum.

If interest rate parity is to hold, what should be the 3 months forward

exchange rate EUR/USD?
1.26
1.25
1.24
1.23
No, the answer is incorrect.
Score: 0
Accepted Answers:
1.25

3 points
If the USD/CCU bid/ask spot rate is 55.50/70 and the two-month swap
points is 25/15, then the two-month USD/CCU forward rate is
55.75/70.15
55.75/85
55.65/90
55.25/55
Yes, the answer is correct.
Score: 3
Accepted Answers:
55.25/55
End Term Assessment
The due date for submitting this assignment has passed.
Due on 2023-10-28, 23:59 IST.

Assignment submitted on 2023-10-

28, 21:33 IST
1 point
‘Invoicing in home currency’ is a ___________ technique to eliminate
foreign exchange risk.
Exogenous
Endogenous
Exogenic
Both A and C
Yes, the answer is correct.
Score: 1
Accepted Answers:
Endogenous

1 point
Land is translated under Monetary/Non-Monetary Method as per
current exchange rate
spot exchange rate
historical exchange rate
average exchange rate
Yes, the answer is correct.
Score: 1
Accepted Answers:
historical exchange rate

1 point
The _________ lays down translation guidelines that are issued under
IFRS.
IAS 21
IAS 24
IAS 28
IAS 26
Yes, the answer is correct.
Score: 1
Accepted Answers:
IAS 21

1 point
In the case of derivatives traded in the ______________________ market, the
risk of default is not borne by the counterparties to the transaction.
Exchange Traded
Over-the-counter
Financial
Derivative
Yes, the answer is correct.
Score: 1
Accepted Answers:
Over-the-counter

1 point
_____________ Futures are the oldest in the world which have been traded
for decades.
Currency
Stock Index
Commodity
Share Index
Yes, the answer is correct.
Score: 1
Accepted Answers:
Commodity

1 point
In exchange traded transactions, which of the following is true:
All settlements are in cash
Trading is anonymous
Only banks are allowed to participate
Contracts size is fluctuating
Yes, the answer is correct.
Score: 1
Accepted Answers:
Trading is anonymous
1 point
If on any date if the spot exchange rate is greater than the strike price,
then the option is _________ .
At the money
In the money
Out of the money
On the money
Yes, the answer is correct.
Score: 1
Accepted Answers:
In the money

2 points
Conversion Effect reflects the impact of change in the
___________________________ of a foreign currency cash flow ______________
contracted for.
foreign currency value …. already
domestic currency value ….. not yet
domestic currency value …. recently
domestic currency value ….. already
No, the answer is incorrect.
Score: 0
Accepted Answers:
domestic currency value ….. not yet

2 points
Translation exposure pertains to the loss or profit on account of
____________ in domestic currency of _______________________ denominated
in foreign currency.
 valuation...assets and liabilities
change...assets and liabilities
change...income and expenditure
valuation...income and expenditure
No, the answer is incorrect.
Score: 0
Accepted Answers:
change...assets and liabilities

2 points
Money market hedge involves __________ against future receivable in
one currency ___________
lending...today
borrowing...at a later date
lending...at a later date
borrowing...today
Yes, the answer is correct.
Score: 2
Accepted Answers:
borrowing...today

2 points
'Premium' is the fee that the option _____________ receives from the
option ____________.
seller …. buyer
buyer …. holder
holder …. seller
holder …. buyer
No, the answer is incorrect.
Score: 0
Accepted Answers:
seller …. buyer

2 points
The ‘principal’ amounts in the two currencies are sourced and
exchanged between the counterparties __________________ of the
currency swap and returned _______________ of the currency swap.
on maturity...at the start
at the start...on maturity
at the start...on cancellation
on cancellation...on maturity
Yes, the answer is correct.
Score: 2
Accepted Answers:
at the start...on maturity

2 points
An Austrian firm that wishes to borrow in the Austrian market will
command a __________ interest (or coupon) rate for Euro borrowings
than a US firm that wishes to borrow in the Austrian markets, even
when both carry identical ____________.
lower...interest rate risk
higher...interest rate risk
lower...credit risk
higher...credit risk
Yes, the answer is correct.
Score: 2
Accepted Answers:
lower...credit risk

2 points
In a ____________ option, the option can be exercised only on the
maturity date while in a ____________ option, it can be exercised on any
business date up to maturity.
American ….. European
European …. American
European …. Asian
American …. Asian
Yes, the answer is correct.
Score: 2
Accepted Answers:
European …. American

3 points
A call option confers on the holder the _______________, but not the
_______________ to _______________ an asset at a pre-specified price up to a
pre-specified date.
obligation...right...sell
authority...responsibility...sell
right...obligation...sell
right...obligation...buy
Yes, the answer is correct.
Score: 3
Accepted Answers:
right...obligation...buy

3 points
Participants in the currency derivatives markets include
_____________________ who wish to cover their risk, ________________________
who wish to profit from exchange rate volatilities and
______________________ who wish to realize risk-free profits.
speculators...hedgers...arbitrageurs
hedgers...speculators...arbitrageurs
hedgers...arbitrageurs...speculators
 speculators...arbitrageurs...hedgers
Yes, the answer is correct.
Score: 3
Accepted Answers:
hedgers...speculators...arbitrageurs

3 points
Futures are legally binding agreements to buy or sell a ______________
quantity of specified asset at a _____________ future date at a specified
_________.
standard...specified...price
standard...unspecified...price
varying...unspecified...cost
varying...specified...cost
Yes, the answer is correct.
Score: 3
Accepted Answers:
standard...specified...price