Correct Answer is: fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied

fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied

fluctuate to equate imports and exports

fluctuate to equate rates of interest in various countries

International Finance MCQ Multiple Choice Questions Answers for Practice

Q: 1. A floating exchange rate

Correct Answer is: is allowed to vary according to market forces)

Q: 2. A forward contract to deliver British pounds for U)S) dollars could be described either as ..................or ...............

Correct Answer is: selling pounds forward; buying dollars forward

Q: 3. A forward currency transaction:

Correct Answer is: or two business days after the transaction date

Q: 4. A simultaneous purchase and sale of foreign exchange for two different dates is called

Correct Answer is: currency swap

Q: 5. A speculator in foreign exchange is a person who

Correct Answer is: earns illegal profit by manipulation foreign exchange

Q: 6. A/An .............is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency)

Correct Answer is: foreign exchange transaction

Q: 7. According to the Purchasing Power Parity (PPP) theory

Correct Answer is: In the long run, the exchange rates between two national currencies will reflect pricelevel differences in the two countries

Q: 8. An arbitrageur in foreign exchange is a person who

Correct Answer is: simultaneously buys large amounts of a currency in one market and sell it in another market

Q: 9. An economist will define the exchange rate between two currencies as the:

Correct Answer is: Amount of one currency that must be paid in order to obtain one unit of another currency

Q: 10. Arbitrageurs in foreign exchange markets:

Correct Answer is: take advantage of the small inconsistencies that develop between markets)

1. A floating exchange rate

is determined by the national governments involved
remains extremely stable over long periods of time
is determined by the actions of central banks
is allowed to vary according to market forces)

2. A forward contract to deliver British pounds for U)S) dollars could be described either as ..................or ...............

buying dollars forward; buying pounds forward
selling pounds forward; selling dollars forward
selling pounds forward; buying dollars forward
selling dollars forward; buying pounds forward

3. A forward currency transaction:

Is always at a premium over the spot rate
Means that delivery and payment must be made within one business day (USA/Canad
or two business days after the transaction date
Calls for exchange in the future of currencies at an agreed rate of exchange

4. A simultaneous purchase and sale of foreign exchange for two different dates is called

currency devalue
currency swap
currency valuation
currency exchange

5. A speculator in foreign exchange is a person who

buys foreign currency, hoping to profit by selling it a a higher exchange rate at some later date
earns illegal profit by manipulation foreign exchange
causes differences in exchange rates in different geographic markets
None of the above

6. A/An .............is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency)

Eurodollar transaction
import/export exchange
foreign exchange transaction
interbank market transaction

7. According to the Purchasing Power Parity (PPP) theory

Exchange rates between two national currencies will adjust daily to reflect price level differences in the two countries
In the long run, inflation rates in different countries will equalize around the world
In the long run, the exchange rates between two national currencies will reflect pricelevel differences in the two countries
None of the above

8. An arbitrageur in foreign exchange is a person who

earns illegal profit by manipulating foreign exchange
causes differences in exchange rates in different geographic markets
simultaneously buys large amounts of a currency in one market and sell it in another market
None of the above

9. An economist will define the exchange rate between two currencies as the:

Amount of one currency that must be paid in order to obtain one unit of another currency
Difference between total exports and total imports within a country
Price at which the sales and purchases of foreign goods takes place
Ratio of import prices to export prices for a particular country

10. Arbitrageurs in foreign exchange markets:

attempt to make profits by outguessing the market)
make their profits through the spread between bid and offer rates of exchange)
take advantage of the small inconsistencies that develop between markets)
need foreign exchange in order to buy foreign goods)

11. Ask quote is for

Seller
Buyer
Hedger
Speculator

12. By definition, currency appreciation occurs when

the value of all currencies fall relative to gold.
the value of all currencies rise relative to gold.
the value of one currency rises relative to another currency.
the value of one currency falls relative to another currency.

13. Counterparty risk is:

The risk of loss when exchange rates change during the period of a financial contract
Based on the notional amount of the contract
The risk of loss if the other party to a financial contract fails to honour its obligation
Present only with exchange-traded options

14. Covered interest rate parity occurs as the result of:

the actions of market-makers
interest rate arbitrage
purchasing power parity
stabilising speculation

15. Exchange rates

are always fixed
fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
fluctuate to equate imports and exports
fluctuate to equate rates of interest in various countries

16. Foreign currency forward market is

An over the counter unorganized market
Organized market without trading
Organized listed market
Unorganized listed market

17. Forward premium / differential depends upon

Currencies fluctuation
Interest rate differential between two countries
Demand & supply of two currencies
Stock market returns

18. Given a home country and a foreign country, purchasing power parity suggests that:

the home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate;
the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate;
the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
the home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate;

19. Hedging is used by companies to:

Decrease the variability of tax paid
Decrease the spread between spot and forward market quotes
Increase the variability of expected cash flows
Decrease the variability of expected cash flows

20. If inflation is expected to be 5 per cent higher in the United Kingdom than in Switzerland:

purchasing power parity would predict that the UK spot rate should decline by about 5 per cent;
the theory of purchasing power parity would predict a drop in nominal interest rates in the United Kingdom of approximately 5 per cent;
expectations theory would suggest that the spot exchange rates between the two countries should remain unchanged over the long run;
the efficient market hypothesis suggests that no predictions can be made under a system of freely floating rates.

21. If one anticipates that the pound sterling is going to appreciate against the US dollar, one might speculate by ..............pound call options or .............pound put options.

buying; buying
selling; buying
selling; selling
buying; selling

22. If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

international monetary credits.
dollars.
yuan, the Chinese currency.
euros, or any other third currency.

23. If purchasing power parity were to hold even in the short run, then:

real exchange rates should tend to decrease over time;
quoted nominal exchange rates should be stable over time.
real exchange rates should tend to increase over time;
real exchange rates should be stable over time;

24. If the U.S. dollar appreciates relative to the British pound,

it will take fewer dollars to purchase a pound
it will take more dollars to purchase a pound
it is called a weakening of the dollar
both a & c

25. If transaction exposure are in same dates, then it can be hedged

By purchasing single forward contract
By purchasing multiple forward contract
Cannot be hedged by forward contracts
None of the above

26. In a quote exchange rate, the currency that is to be purchase with another currency is called the

liquid currency
foreign currency
local currency
base currency

27. In the foreign exchange market, the ............of one country is traded for the .............of another country.

currency; currency
currency; financial instruments
currency; goods
goods; goods

28. Interest Rate Parity (IRP) implies that:

Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
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
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
In the long run real interest rate between two countries will be equal

29. Interest rate swaps are usually possible because international financial markets in different countries are

Efficient
Perfect
Imperfect
Both a & b

30. It is very difficult to interpret news in foreign exchange markets because:

very little information is publicly available
most of the news is foreign
it is difficult to know which news is relevant to future exchange rates
it is difficult to know whether the news has been obtained legally

Master the complexities of International Finance with our comprehensive Multiple Choice Questions (MCQs). Ideal for students and exam aspirants, these quizzes cover essential topics and prepare you for success.

About International Finance MCQ Questions

International Finance MCQs delve into key concepts such as exchange rates, international trade, financial markets, and global economic policies. These questions are designed to enhance your understanding and application of financial principles in a global context.

Why Practice International Finance Objective Questions?

Practicing these MCQs offers numerous benefits. They help you prepare for exams, improve your problem-solving skills, and boost your confidence for job interviews. Regular practice ensures that you stay updated with the latest trends and theories in international finance.

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