MCQs on Foreign Exchange Management - 8

1. FRAs can’t be used for 

(A) Hedging. 
(B) Arbitraging. 
(C) Speculating. 
(D) Any of the Above.

2. The true cost of hedging transaction exposure by using forward market is 

(A) Difference between agreed rate and spot rate at the time of entering into contract. 
(B) Difference between agreed rate and spot rate on the due date of contract 
(C) Forward premium / discount annualized. 
(D) None of the above.

3. Hedging with options is best recommended for 

(A) Hedging receivables. 
(B) Hedging payables. 
(C) Hedging contingency exposures. 
(D) Hedging foreign currency loans

4. A firm operating in India cannot hedge its foreign currency exposure through 

(A) Forwards. 
(B) Futures. 
(C) Options. 
(D) None of the above.

5. Foreign currency exposures can be avoided by 

(A) Entering into forward contracts. 
(B) Denominating the transaction in domestic currency. 
(C) Exposure netting 
(D) Maintaining foreign currency accounts.

6. The following method does not result in sharing of an exchange risk between importer and exporter 

(A) Denominating in a third currency. 
(B) Denominating partly in importer's currency and partly in exporter's currency. 
(C) Entering a exchange rate clause in the contract. 
(D) Denominating in domestic currency.

7. Leading refers to 

(A) Advancing of receivables. 
(B) Advancing of payables. 
(C) Advancing payments either receivables or payables. 
(D) Advancing of receivables and delaying of payables.

8. Translation exposure arises in respect of items translated at 

(A) Current rate. 
(B) Historical rate. 
(C) Average rate. 
(D) All of the above.

9. Translation loss is 

(A) A loss to the parent company. 
(B) A loss to the subsidiary company. 
(C) A notional loss. 
(D) An actual loss.

10. The translation exposure is positive when 

(A) Exposed assets are lesser than exposed liabilities. 
(B) Exposed liabilities are lesser than exposed assets. 
(C) The exposure results in profit. 
(D) There are no liabilities.

More MCQs on Foreign Exchange Management



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