QN1. In direct quotation the principle adopted by the bank is to
A. buy low only
B. buy low; sell high
C. buy high; sell low
D. sell low only
Answer
Answer: B
QN2. In indirect quotation the principle adopted by the bank is to
A. buy low only
B. buy low; sell high
C. buy high; sell low
D. sell low only
Answer
Answer: C
QN3. Indirect quotation is also known as
A. home currency quotation
B. foreign currency quotation
C. European quotation
D. American quotation
Answer
Answer: B
QN4. Derivatives can be used by an exporter for managing-
A. currency risk
B. cargo risk
C. credit risk
D. all the above
Answer
Answer: A
QN5. The term risk in business refers to-
A. chance of losing business
B. chance of making losses
C. uncertainty associated with expected event leading to losses or gains
D. threat from competitors
Answer
Answer: C
QN6. Under the forward exchange contract-
A. the exchange rate is determined on the future date
B. the parties agree to meet at a future date for finalisation
C. delivery of foreign exchange is done on a predetermined future date
D. none of the above
Answer
Answer: C
QN7. The bank should verify the letter of credit/sale contract for booking a-
A. forward sale contract
B. forward purchase contract
C. cancelleing a forward contract
D. none of the above
Answer
Answer: B
QN8. Normally forward purchase contract booked should be used by the customer-
A. for executing the export order for which the contract was booked
B. for any export order from the same buyer
C. for any export order for the same commodity
D. for any export order
Answer
Answer: A
QN9. A currency future is not
A. traded on futures exchanges
B. a special type of forward contract
C. of standard size
D. available in India
Answer
Answer: D
QN10. Which of the following statements is true?
A. Exchange exposure leads to exchange risk
B. exchange risk leads to exchange exposure
C. exchange exposure and exchange risk are unrelated
D. none of the above
Answer
Answer: A
QN11. The net potential gain or loss likely to arise from exchange rate changes is-
A. exchange exposure
B. exchange risk
C. profit/loss on foreign exchange
D. exchange difference
Answer
Answer: B
QN12. The exchange loss/gain due to transaction exposure is reckoned on-
A. entering into a transaction in foreign exchange
B. quoting a price for a foreign currency transaction
C. conversion of foreign currency into domestic currency
D. entry in the books of accounts
Answer
Answer: C
QN13. Transaction exposure can be hedged
A. by internal methods only
B. by external methods only
C. either by internal methods or by external methods, but not by both
D. either by internal methods or by external methods or a combination of both
Answer
Answer: D
QN14. The external methods of hedging transaction exposure does not include-
A. forward contract hedge
B. money market hedge
C. cross hedging
D. futures hedging
Answer
Answer: C
QN15. The true cost of hedging transaction exposure by using forward market is-
A. the difference between the agreed rate and the spot rate at the time of entering into the contract
B. the difference between the agreed rate and the spot rate on the due date of the contract.
C. the forward premium/discount annualised
D. none of the above
Answer
Answer: B
QN16. Money market hedge involves-
A. borrowing/investing the concerned currency in the money market and squaring the position on the
due date of receivable/payable
B. borrowing/investing the concerned currency in the money market and covering the position immediately in the forward market.
C. covering an exposure int he domestic currency
D. simultaneous borrowing and lending int he money market.
Answer
Answer: A
QN17. The cost of hedging through options includes-
A. option premium
B. interest on option premium till due date of the contract
C. both (a) and (b) above
D. (a) above and differences between option price and spot price.
Answer
Answer: C
QN18. Hedging with options is best-recommended for-
A. hedging receivables
B. hedging contingency exposures
C. hedging foreign currency loans.
D. hedging payables
Answer
Answer: B
QN19. Internal hedge for transaction exposure does not include-
A. exposure netting
B. choosing currency of invoicing
C. cross hedging
D. none of the above
Answer
Answer: D
QN20. Foreign currency exposure can be avoided by
A. entering into forward contracts
B. denominating the transaction in domestic currency
C. exposure netting
D. maintaining foreign currency account
Answer
Answer: B
QN21. Maintaining a foreign currency account is helpful to-
A. avoid transaction cost
B. avoid exchange risk
C. avoid both transaction cost and exchange risk
D. avoid exchange risk and domestic currency depreciation
Answer
Answer: C
QN22. The following method does not result in sharing of exchange risk between importer and exporter-
A. denominating in a third currency
B. denominating partly in the importer’s currency and partly in the exporter’s currency.
C. entering an exchange rate clause in the contract
D. denominating in domestic currency
Answer
Answer: D
QN23. Leading refers to-
A. advancing of receivables
B. advancing of payables
C. advancing payments either receivables or payables
Answer
Answer: C
QN24. Translation exposure arises in respect of items translated at –
A. current rate
B. historical rate
C. average rate
D. all the above
Answer
Answer: A
QN25. 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
Answer
Answer: C
QN26. 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 agreed liabilities
Answer
Answer: B
QN27. For the purpose of translation, current rate refers to-
A. the rate current at the time of the transaction
B. the rate prevalent on the date of the balance sheet
C. the rate prevalent on the date of preparation of the balance sheet
D. the spot rate
Answer
Answer: B
QN28. For the purpose of translation exposure, the historical rate is the rate prevalent on the date-
A. the parent company was established
B. the foreign subsidiary was established
C. the investment in the subsidiary was made by the parent company
D. the asset was acquired or the liability was incurred
Answer
Answer: D
QN29. Exposed assets are those translated at-
A. historical rate
B. average rate
C. current rate
D. current rate or average rate.
Answer
Answer: C
QN30. A positive exposure will lead to ………….when the currency of the subsidiary company appreciates.
A. translation gain
B. translation loss
C. exchange gain
D. exchange loss
Answer
Answer: A
QN31. Translation loss may occur when-
A. exposed assets exceed exposed liabilities and foreign currency appreciates
B. exposed assets exceed exposed liabilities and foreign currency depreciates
C. the subsidiary’s balance sheet shows a loss
D. the foreign currency depreciates
Answer
Answer: B
QN32. The following method cannot be used for managing translation exposure
A. forward contract
B. option contract
C. exposure netting
D. leading and lagging
Answer
Answer: B
QN33. The method of managing translation exposure that is also available for managing transaction exposure is-
A. balance sheet hedge
B. transfer pricing
C. swaps
D. none of the above
Answer
Answer: D
QN34. Economic exposure does not deal with-
A. changes in real exchange rates
B. future cash flows of the firm
C. expected exchange rate changes
D. none of the above
Answer
Answer: C
QN35. If the rupee depreciates in real terms, cash inflows of a firm engaged in exports is-
A. definite to increase
B. definite to decrease
C. generally will increase, if the government does not intervene.
D. will increase provided the demand for its exports is elastic.
Answer
Answer: D
QN36. Market selection as a strategy to manage economic exposure requires-
A. preferring domestic market to foreign market
B. preferring market with fixed exchange rate
C. shifting to a market whose currency has appreciated
D. shifting to a market whose currency has depreciated
Answer
Answer: C
QN37. Ideal time for launching a product in a foreign market is
A. when domestic currency has depreciated
B. when domestic currency has appreciated
C. when exchange rate in the markets are fluctuating violently
D. none of the above
Answer
Answer: A
QN38. Production strategies for managing economic exposure do not include-
A. importing input if local currency appreciates
B. shifting production to a country whose currency has not appreciated
C. shifting production to a low-cost centre
D. reviving uneconomic units
Answer
Answer: D
QN39. Financial strategies for managing economic exposure does not include-
A. minimising cost of borrowing by sourcing from cheaper market
B. matching of assets and liabilities in a currency
C. securing parallel loans and swaps
D. delaying the product launch
Answer
Answer: D
QN40. The transaction in which the bank receives foreign currency from the customer and pays him in local currency is a –
A. purchase transaction
B. sale transaction
C. direct transaction
D. indirect transaction
Answer
Answer: A
