241. A project may be regarded as high risk project when
A. It has smaller variance of outcome but a high initial investment
B. It has larger variance of outcome and high initial investment
C. It has smaller variance of outcome and a low initial investment
D. It has larger variance of outcome and low initial investment
Answer
A. It has smaller variance of outcome but a high initial investment
242. Following is (are) the method(s) for adjustment of risks
A. Risk-adjusted Discounting Rate
B. Risk Equivalence Coefficient Method
C. Both (A) and (B)
D. None of the above
Answer
C. Both (A) and (B)
243. With limited finance and a number of project proposals at hand, select that package of projects which has
A. The maximum net present value
B. Internal rate of return is greater than cost of capital
C. Profitability index is greater than unity
D. Any of the above
Answer
A. The maximum net present value
244. 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.
Answer
C. There are possible benefits from international diversification.
245. Theory which considers change in exchange rate with fluctuations in inflation rates isclassified as
A. liquidated power parity
B. purchasing power parity
C. selling power parity
D. volatile power parity
Answer
B. purchasing power parity
246. 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.
Answer
D. real exchange rates should be stable over time.
247. Given a home country and a foreign country, purchasing power parity suggests that:
A. the home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate
B. the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate
C. the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate
D. the home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate
Answer
C. the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate
248. Interest Rate Parity (IRP) implies that:
A. Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
B. The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
C. The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the longterm by an equal but opposite change in the spot exchange rate
D. In the long run real interest rate between two countries will be equal
Answer
B. The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
249. In equilibrium position, spread between foreign and domestic rate of interest must be equalto spread of
A. domestic rates
B. forward and spot exchange rates
C. forward rate
D. spot rates
Answer
B. forward and spot exchange rates
250. Rule which states that similar set of goods and services produced in various countriesshould have equal price is classified as
A. law of similar mortgage rate
B. law of one type manufacturing
C. law of similar labor rules
D. law of one price
Answer
D. law of one price
251. Example of derivative securities includes
A. swap contract
B. option contract
C. futures contract
D. all of above
Answer
D. all of above
252. Authority which intervenes directly or indirectly in foreign exchange markets by alteringinterest rates is considered as
A. central government
B. centralized stocks
C. central corporations
D. centralized instruments
Answer
A. central government
253. The forward market is especially well-suited to offer hedging protection against
A. translation risk exposure.
B. transactions risk exposure.
C. political risk exposure.
D. taxation.
Answer
B. transactions risk exposure.
254. Suppose that the Japanese yen is selling at a forward discount in the forward-exchange market. This implies that most likely
A. this currency has low exchange-rate risk.
B. this currency is gaining strength in relation to the dollar.
C. interest rates are higher in Japan than in the United States.
D. interest rates are declining in Japan.
Answer
C. interest rates are higher in Japan than in the United States.
255. Hedging is used by companies to:
A. Decrease the variability of tax paid
B. Decrease the spread between spot and forward market quotes
C. Increase the variability of expected cash flows
D. Decrease the variability of expected cash flows
Answer
D. Decrease the variability of expected cash flows
256. 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.
Answer
C. The futures market is mainly used by speculators while the forward market is mainly used for hedging.
257. 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
Answer
B. fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
258. 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
Answer
C. simultaneously buys large amounts of a currency in one market and sell it in another market
259. 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
Answer
A. buys foreign currency, hoping to profit by selling it a a higher exchange rate at some later date
260. A floating exchange rate
A. is determined by the national governments involved
B. remains extremely stable over long periods of time
C. is determined by the actions of central banks
D. is allowed to vary according to market forces
Answer
D. is allowed to vary according to market forces
261. The current system of international finance is a
A. gold standard
B. fixed exchange rate system
C. floating exchange rate system
D. managed float exchange rate system
Answer
D. managed float exchange rate system
262. A simultaneous purchase and sale of foreign exchange for two different dates is called
A. currency devalue
B. currency swap
C. currency valuation
D. currency exchange
Answer
B. currency swap
263. Investment can be defined.
A. Person’s dedication to purchasing a house or flat
B. Use of capital on assets to receive returns
C. Usage of money on a production process of products and services
D. Net additions made to the nation’s capital stocks
Answer
B. Use of capital on assets to receive returns
264. The concept of Financial management is.
A. Profit maximization
B. All features of obtaining and using financial resources for company operations
C. Organization of funds
D. Effective Management of every company
Answer
B. All features of obtaining and using financial resources for company operations
265. What is the primary goal of financial management?
A. To minimise the risk
B. To maximise the owner’s wealth
C. To maximise the return
D. To raise profit
Answer
B. To maximise the owner’s wealth
266. The finance manager is accountable for.
A. Earning capital assets of the company
B. Effective management of a fund
C. Arrangement of financial resources
D. Proper utilisation of funds
Answer
C. Arrangement of financial resources
267. The market value of a share is responsible for.
A. The investment market
B. The government
C. Shareholders
D. The respective companies
Answer
A. The investment market
268. The capital budget is associated with.
A. Long terms and short terms assets
B. Fixed assets
C. Long terms assets
D. Short term assets
Answer
C. Long terms assets
269. CAPM stands for.
A. Capital asset pricing model.
B. Capital amount printing model.
C. Capital amount pricing model.
D. Capital asset printing model.
Answer
A. Capital asset pricing model.
270. What does financial leverage measure?
A. No change with EBIT and EPS
B. The sensibility of EBIT with % change with respect to output
C. The sensibility of EPS with % change in the EBIT level
D. % variation in the level of production
Answer
C. The sensibility of EPS with % change in the EBIT level
271. From the below-mentioned items which are financial assets?
A. Machines
B. Bonds
C. Stocks
D. B and C
Answer
C. Stocks
272. Trade between two countries can be useful if cost ratios of goods are:
A. Undetermined
B. Decreasing
C. Equal
D. Different
Answer
D. Different
273. The term Euro Currency market refers to
A. The international foreign exchange market
B. The market where the borrowing and lending of currencies take place outside the country of issue
C. The countries which have adopted Euro as their currency
D. The market in which Euro is exchanged for other currencies
Answer
B. The market where the borrowing and lending of currencies take place outside the country of issue
274. Which of the following theories suggests that firms seek to penetrate new markets over time?
A. Imperfect Market Theory
B. Product cycle theory
C. Theory of Comparative Advantage
D. None of the above
Answer
B. Product cycle theory
275. Dumping refers to:
A. Reducing tariffs
B. Sale of goods abroad at low a price, below their cost and price in home market
C. Buying goods at low prices abroad and selling at higher prices locally
D. Expensive goods selling for low prices
Answer
B. Sale of goods abroad at low a price, below their cost and price in home market
276. International trade and domestic trade differ because of:
A. Different government policies
B. Immobility of factors
C. Trade restrictions
D. All of the above
Answer
D. All of the above
277. The margin for a currency future should be maintained with the clearing house by
A. The seller
B. The buyer
C. Either the buyer or the seller as per the agreement between them
D. Both the buyer and the seller
Answer
D. Both the buyer and the seller
278. The following statement with respect to currency option is wrong
A. Foreign currency- Rupee option is available in India
B. An American option can be executed on any day during its currency
C. Put option gives the buyer the right to sell the foreign currency
D. Call option will be used by exporters
Answer
D. Call option will be used by exporters
279. Govt. policy about exports and imports is called:
A. Commercial policy
B. Fiscal policy
C. Monetary policy
D. Finance policy
Answer
A. Commercial policy
280. Which of the following is international trade:
A. Trade between countries
B. Trade between regions
C. Trade between provinces
D. Both (b) and (c)
Answer
A. Trade between countries
