MCQs on Foreign Exchange Management - 6

1.The forward US dollar is quoted at premium against Indian Rupees. This implies 

(A) Money market rates are higher in India than in the US. 
(B) Money market rates are lower in India than in the US. 
(C) Market yield is higher in US than in India. 
(D) Dollar has a better value than Indian Rupee.

2. Determination of forward rates is explained by 

(A) Uncovered interest arbitrage. 
(B) Purchasing power parity theory. 
(C) Demand and Supply for spot currency. 
(D) None of the above.

3. According to International Fisher Effect 

(A) Forward Premium for a currency indicates its depreciation in future. 
(B) Forward Premium for a currency indicates its appreciation in future. 
(C) Forward Rates and spot rates are not linked 
(D) Forward Rates are based on expected future spot rates.

4. 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.

5. 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.

6. The margin for a currency future should be maintained with the clearinghouse by 

(A) The buyer. 
(B) The seller. 
(C) Both the buyer and the seller. 
(D) Either the buyer or the seller as per the agreement between them.

7. The marking to market in respect of a currency future refers to 

(A) Putting up for sale specific lot of futures. 
(B) Adjusting the margin money of buyer and seller to reflect the current value of futures 
(C) Quoting rates for different maturities. 
(D) Allotting futures among different brokers.

8. For the balance kept in the margin account for futures 

(A) Interest is paid at riskless rate. 
(B) Interest is paid at LIBOR rate 
(C) Interest is paid for the surplus over the required minimum. 
(D) No interest is paid.

9. A feature of currency option that distinguishes it from other derivatives is 

(A) It carries premium to be paid up front. 
(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.

10. 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.

More MCQs on Foreign Exchange Management



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