MCQS ON FOREIGN EXCHANGE CONCEPTS

1. Foreign Exchange transactions involve monetary transactions

A. Among residents of the same country
B. Between residents of two countries only
C. Between residents of two or more countries
D. Among residents of at least three countries

ANSWER: B
2. Under FEMA, the RBI has been authorized to make ------ to carry out the
provisions of the Act.
A. Rules
B. Regulations
C. Both Rules and Regulations
D. Notifications

ANSWER: B

3. A foreign currency account maintained by a bank abroad is its

A. Nostro account
B. Vostro account
C. Loro account
D. Foreign bank account

ANSWER: A

4. 'Non-resident Bank Accounts' refer to

A. Nostro account
B. Vostro account
C. Accounts opened in offshore centres
D. None of the above

ANSWER: B

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5. Non-resident bank accounts are maintained in
A. The permitted currencies
B. The currency of the country of the bank maintaining the account
C. The currencies in which FCNR accounts are permitted to be maintained
D. Indian rupee

ANSWER: D

6. The statutory basis for administration of foreign exchange in India is

A. Foreign Exchange Regulation Act, 1973
B. Conservation of foreign Exchange and Prevention of Smuggling Act.
C. Foreign Exchange Management Act, 1999
D. Exchange Control Manual

ANSWER: C

7. Full fledged money changers are authorized to undertake

A. Only sale transactions
B. Only purchase transactions
C. All types of foreign exchange transactions
D. Purchase and sale of foreign currency notes, coins and travellers cheques

ANSWER: D

8. The acronym FEDAI stands for

A. Foreign Exchange Dealers' Association of India
B. Federal Export Dealers' Association of India
C. Fixed Earners' Draft Agreement on Interest
D. None of the above

ANSWER: A

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9. An authorized person under FEMA does not include
A. An authorized dealer
B. An authorized money changer
C. An off-shore banking unit
D. An exchange broker

ANSWER: D

10. The authorized dealers under FEMA are classified into ----- categories
A. Three
B. one
C. two
D. four

ANSWER: A

11. The term 'loro account' means

A. Our account with you
B. Your account with us
C. Their account with them
D. None of the above

ANSWER: C

12. The term 'Nostro account' means

A. our account with you
B. your account with us
C. their account with them
D. none of the above

ANSWER: A

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13. The term 'Vostro account' means
A. our account with you
B. your account with us
C. their account with them
D. none of the above

ANSWER: B

14. The market forces influencing the exchange rate are not fully operational
under
A. Floating exchange rate system
B. Speculative attack on the market
C. Fixed exchange rate system
D. Current regulations of imf

ANSWER: C

15. According to classification by IMF, the currency system of India falls under
A. Managed floating
B. Independently floating
C. Crawling peg
D. Pegged to basket of currencies

ANSWER: A

16. Under fixed exchange rate system, the currency rate in the market is
maintained through
A. Official intervention
B. Rationing of foreign exchange
C. Centralizing all foreign exchange operations with central bank of the country
d. None of the above
ANSWER: A

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17. The reduction in the value of a currency due to market forces is known as
A. Revaluation
B. Depreciation
C. Appreciation
D. Inflation

ANSWER: B

18. The largest foreign exchange market in the world is

A. Newyork
B. London
C. Japan
D. Swiss

ANSWER: B

19. Foreign exchange market is considered 24 hours market because

A. It is open all through the day
B. All transactions are to be settled with in 24 hours
C. Due to geographical dispersal at least one market is active at any point of time
d. Minimum 24 hours must lapse before any transaction is settled

ANSWER: C

20. The major players in the foreign exchange market are

A. Commercial banks
B. Corporate
C. Exchange brokers
D. Central bank of the country and the central government

ANSWER: A

21. Speculation in foreign exchange market refers to

A. Buying or selling of currencies in large volumes

B. Booking of forward contracts without intention to execute
C. Buying or selling with a view to make profits from movement in rates
D. Buying or selling with a view to making riskless profits.
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ANSWER: C

22. Arbitrageur in a foreign exchange market

A. Buys when the currency is low and sells when it is high
B. Buys and sells simultaneously the currency with a view to making riskless
profit
C. Sells the currency when he has a receivable in future
D. Buys or sells to make advantage of market imperfections

ANSWER: B

23. The acronym SWIFT stands for

A. Safety Width in Financial Transactions
B. Society for Worldwide International Financial Telecommunication
C. Society for Worldwide Interbank Financial Telecommunication
D. Swift Worldwide Information for Financial Transactions

ANSWER: C

24. Indirect rate in foreign exchange means -

A. The rate quoted with the units of home currency kept fixed
B. The rate quoted with units of foreign currency kept fixed
C. The rate quoted in terms of a third currency
D. None of the above

ANSWER: A

25. Indirect rate of exchange is quoted in India for -

A. Sale of foreign traveler’s cheque
B. Sale of rupee traveler’s cheques
C. Purchase of personal cheques
D. None of the above

ANSWER: D

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26. In direct quotation, the unit kept constant is -
A. The local currency
B. The foreign currency
C. The subsidiary currency
D. None of the above.

ANSWER: B

27. The maxim 'buy low; sell high' is applicable for

A. Quotation of pound-sterling
B. Indirect rates
C. Direct rates
D. Us dollars

ANSWER: C

28. In Mumbai, US Dollar is quoted as under: USD 1 = Rs.43.6725/6875. It means

A. The buying rate is Rs.43.6725 and selling rate is Rs.43.6875.
B. The buying rate is Rs.43.6875 and selling rate is Rs.43.6725
C. The dollar is appreciating in value.
D. The dollar is depreciating in value

ANSWER: A

29. In foreign exchange markets, 'American Quotation' refers to

A. Quotation by a US based bank
B. Quotation in NEW YORK foreign exchange market
C. Quotation in which the value of foreign currency is expressed per us dollar.
D. Quotation in which the value of US dollar is expressed per unit of foreign
currency

ANSWER: D

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30. Forward margin is
A. The profit on forward contract
B. Commission payable to exchange brokers.
C. Difference between the spot rate and forward rate
D. None of the above

ANSWER: C

31. In the following quote: Spot USD 1 = Rs.45.6500/650 Spot September 100/150
September forward buying rate for dollar is
A. Rs.45.6800
B. Rs.45.6600
C. Rs.45.7500
D. Rs.45.6500

ANSWER: B

32. The transaction where the exchange of currencies takes place two days after
the date of the contract is known as
A. Ready transaction
B. Value today
C. Spot transactions
D. Value tomorrow

ANSWER: C

33. The transaction where the exchange of currencies takes place on the same
date is known as
A. Tom
B. Ready transaction
C. Spot transactions
D. Value tomorrow

ANSWER: B

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34. A transaction in which the currencies to be exchanged the next dayof the
transaction is known as
A. ready transaction
B. value today
C. spot transactions
D. Value tomorrow

ANSWER: D

35. The transaction in which the exchange of currencies takes place at a specified
future date, subsequent to the spot date is known as a
A. Swap Transaction
B. Forward Transaction
C. Future Transaction
D. Non-Deliverable Forwards

ANSWER: B

36. One month forward contract entered into on 22nd March will fall due on
A. 21th April
B. 22nd April
C. 23rd April
D. 24th April

ANSWER: D

37. The buying rate is also known as the

A. Bid Rate
B. Offer Rate
C. Spread
D. Swap

ANSWER: A

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38. The selling rate is also known as
A. Bid Rate
B. Offer Rate
C. Spread
D. Swap

ANSWER: B

39. The difference between buying rate and selling rate is the gross profit for the
bank and is known as the
A. Bid Rate
B. Offer Rate
C. Spread
D. Swap

ANSWER: C

40. Direct quotation is also known as

A. Home Currency Quotation
B. Foreign Currency Quotation
C. Currency Quotation
D. American Quotation

ANSWER: A

41. 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: B

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42. 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: C

43. Indirect quotation is also known as

A. home currency quotation
B. foreign currency quotation
C. European quotation
D. American quotation

ANSWER: B

44. Derivatives can be used by an exporter for managing

A. Currency risk
B. Cargo risk
C. Credit risk
D. All the above

ANSWER: A

45. 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: C

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46. 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: C

47. The bank should verify the letter of credit/sale contract for booking a
A. Forward sale contract
B. Forward purchase contract
C. Cancelling a forward contract
D. None of the above

ANSWER: B

48. 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: A

49. 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: D

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50. 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: A

51. 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: B

52. 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: C

53. 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: D

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54. 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: C

55. The true cost of hedging transaction exposure by using forward market is
A. The difference between agreed rate and the spot rate at the time of entering
into the contact
B. The difference between agreed rate and the spot rate on the due date of the
contract.
C. The forward premium/discount annualized
D. None of the above

ANSWER: B

56. 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 in the money market.

ANSWER: A

57. 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: C
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58. Hedging with options is best recommended for
A. Hedging receivables
B. Hedging contingency exposures
C. Hedging foreign currency loans.
D. Hedging payables

ANSWER: B

59. A firm operating in India cannot hedge its foreign currency exposure through
A. Forwards B. Futures C. Options D. None of the above

ANSWER: B

60. 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: D

61. 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: B

62. 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: C
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63. 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 int he exporter's
currency.
C. Entering a exchange rate clause in the contract
D. Denominating in domestic currency

ANSWER: D

64. 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.

ANSWER: C

65. Translation exposure arises in respect of items translated at

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

ANSWER: A

66. 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: C

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67. 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: B

68. 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: B

69. For the purpose of translation exposure, 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: D

70. Exposed assets are those translated at

A. Historical rate
B. Average rate
C. Current rate
D. Current rate or average rate.

ANSWER: C

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71. 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: A

72. 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: B

73. The following method cannot be used for managing translation exposure
A. Forward contract
B. Option contract
C. Exposure netting
D. Leading and lagging

ANSWER: B

74. 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: D

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75. 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: C

76. If 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 government does not intervene.
D. Will increase provide the demand for its exports is elastic

ANSWER: D

77. 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: C

78. Ideal time for launching a product in foreign market is

A. When domestic currency has depreciated
B. When domestic currency has appreciated
C. When exchange rate in the markets is fluctuating violently
D. None of the above
ANSWER: A

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79. 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: D

80. Financial strategies for managing economic exposure does not include
A. Minimizing 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 launches

ANSWER: D

81. 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: A

82. The transaction in which the bank receives local currency from the customer
and pays him foreign currency is a
A. Purchase transaction
B. Sale transaction
C. Direct transaction
D. Indirect transaction
ANSWER: B

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83. The following is not a sale transaction of foreign exchange:
A. Issue of a foreign demand draft
B. Payment of an import bill
C. Realization of an export bill
D. None of the above

ANSWER: C

84. Interest for the transit period is included in -

A. Bill buying rate
B. Bill selling rate
C. Usance bill buying rate
D. None of the above

ANSWER: D

85. The exchange margin included by a bank in the exchange rate quoted to the
customer is
A. Prescribed by reserve bank
B. Prescribed by FEDAI
C. Determined by the bank concerned within the limits prescribed by FEDAI
D. Determined by the bank concerned

ANSWER: D

86. The minimum fraction in which exchange rates are quoted by banks to their
customers is
A. 0.0001
B. 0.005
C. 0.0025
D. 0.01

ANSWER: C

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87. The exchange rates quoted by an authorized dealer to its customers are
known as
A. Authorized rates
B. Commercial rates
C. Merchant rates
D. Indirect rates

ANSWER: C

88. TT buying rate is not applicable for the following transaction

A. Encashment of a DD for which cover has already been received
B. Encashment of an MT for which paying bank has to make reimbursement
claim with the issuing bank.
C. Realisation of a foreign bill sent for collection
D. Payment of a cable transfer.

ANSWER: B

89. Bill buying rates are applicable to

A. All export transactions
B. Any transaction to which TT buying rate is not applicable
C. Realization of a foreign bill sent for collection
D. Only for purchase/negotiation of export bills

ANSWER: D

90. As per FEDAI Rules, the rupee value of all foreign exchange transactions
should be rounded off to
A. Nearest rupee
B. Nearest ten rupees
C. Nearest paise
D. Nearest ten paise

ANSWER: A

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91. Buying rate for ready merchant rate is derived from
A. Interbank Spot Buying Rate
B. Interbank Ready Buying Rate
C. Interbank Spot Selling Rate
D. Interbank Ready Selling Rate

ANSWER: A

92. The quotation for merchant transaction is

A. Two-way quotation
B. Applicable to all merchant transactions uniformly
C. Specific to the transaction for which it is quoted
D. Applicable only for traders.

ANSWER: C

93. An export bill is taken for collection by the bank. The exchange rate applied
for the transaction will be:
A. Bill buying rate
B. Bill selling rate
C. Tt buying rate as on the date of sending the bill for collection
D. Tt buying rate as on the date of realisation of the bill

ANSWER: D

94. An import customer accepts a bill drawn on him. The bank will apply
A. Bill selling rate
B. Bill acceptance rate
C. TT selling rate
D. No exchange rate, since no foreign exchange transaction is executed

ANSWER: D

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95. TT buying rate is applicable for transactions where
A. Remittance is received by telecommunication
B. Remittance is sent by telecommunication
C. The Nostro account of the bank is already credited
D. The Nostro account of the bank is already debited

ANSWER: C

96. The term notional due date refers to

A. The date on which an export bill is likely to be paid
B. Due date arrived at without considering the holidays
C. Due date of a bill drawn without a due date
D. None of the above

ANSWER: A

97. TT selling rate is applicable for transactions of

A. Issue of telegraphic transfers
B. Outward remittances other than for retirement of import bill
C. Retirement of import bill for which remittance is sent by tt
D. Payment of telegraphic transfer

ANSWER: B

98. In calculating cross rates, exchange margin is entered

A. Only once in the dollar/rupee rate
B. Only once in the dollar/foreign currency rate
C. Twice in the dollar/rupee rate and dollar/foreign currency rate
D. Twice in the dollar/rupee rate and dollar/foreign

ANSWER: A

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99. The merchant rate for pound sterling is calculated by banks in India
A. Directly based on interbank sterling/rupee rate
B. Directly based on rbi rate for sterling
C. As a cross rate using dollar/rupee rate and dollar/sterling rate
D. As a cross rate using euro/rupee rate and euro/sterling rate

ANSWER: C

100. For calculating cross currency rates, banks in India use the dollar/foreign
currency rate quotedin
A. Mumbai
B. London
C. New York
D. Any International Market

ANSWER: D

101. For cross currency quotation rounding off is done to the nearest multiple of
A. 0.0001
B. 0.0025
C. 0.001
D. No rounding off.

ANSWER: B

102. For option forward purchase transactions the forward premium will be
reckoned
A. Based on earliest delivery date
B. Based on latest delivery date
C. Based on the average due date for delivery
D. None of the above.

ANSWER: A

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103. Cover deal by a dealer of an authorized dealer is undertaken to
A. Profit from exchange rate movements
B. Cover up mistakes done by the dealer
C. Square up the position resulting from dealings with customers
D. None of the above.

ANSWER: C

104. For funding the vostro acount, the bank in India will apply
A. Its TT buying rate
B. Its TT selling rate
C. Interbank Spot Buying Rate
D. Interbank Spot Selling Rate

ANSWER: C

105. The objective of trading in foreign exchange by a dealer of a bank is to

A. make profit out of
C. comply with exchange control regulations
D. none of the above
ANSWER: A

106. For the banker, the spread will be wider when

A. Purchase of foreign currency from a customer is covered by a sale to another
customer of the bank
B. Merchant trades are covered by interbank deals
C. Exposure in one currency is covered by a position in another currency
D. Purchase of foreign currency from a customer is covered by sale to customer
of another bank

ANSWER: A

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107. Both legs of swap will be executed
A. At the same rate
B. On the same date
C. At different rates
D. At different rates on different dates

ANSWER: D

108. A swap deal is executed by

A. Settling the difference in the rates
B. Actual delivery of currencies
C. Entering into another swap deal
D. None of the above

ANSWER: B

109. Foreign Exchange Management Act Passed in the year

A. 1997
B. 1998
C. 1999
D. 2000

ANSWER: C

110. Euro was launched on

A. 1999
B. 2000
C. 2001
D. 2002

ANSWER: A

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111. -------- transaction the quoting bank acquires foreign currency and parts with
home currency
A. Sale
B. Purchase
C. Spot
D. Forward

ANSWER: B

112. In a ------------ transaction the quoting bank parts with foreign currency and
acquires home currency
A. Sale
B. Purchase
C. Spot
D. Forward

ANSWER: B

113. TT stands for

A. Telegraphic Transfer
B. Telex Transfer
C. Telephone Transfer
D. Today

ANSWER: A

114. The rate applied when the Nostro account of the bank would already have
been credited
A. TT selling rate
B. Bill buying rate
C. Bill selling rate
D. TT buying Rate

ANSWER: D

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115. The rate applied when payment of demand draft drawn on the bank where
bank's nostro account is already credited
A. TT selling rate
B. Bill selling rate
C. Bill buying rate
D. TT buying Rate

ANSWER: C

116. The rate applied when payment of mail transfers drawn on the bank where
bank's nostro account is already credited A. TT selling rate B. Bill selling rate
C. TT buying Rate D. Bill buying rate ANSWER: C

117. The rate applied when payment of telegraphic transfers drawn on the bank
where bank's nostro account is already credited
A. TT selling rate
B. Bill selling rate
C. Bill buying rate
D. TT buying Rate

ANSWER: D

118. The rate applied when foreign bills collected and the bank's nostro account
abroad is credited
A. TT buying Rate
B. TT selling rate
C. Bill selling rate
D. Bill buying rate

ANSWER: A

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119. The rate applied when a foreign bills is purchased
A. TT buying Rate
B. TT selling rate
C. Bill selling rate
D. Bill buying rate
ANSWER: D

120. The rate used for all transactions that do not involve handling of documents
by the banks is
A. TT buying Rate
B. TT selling rate
C. Bill selling rate
D. Bill buying rate

ANSWER: B

121. TT selling rate is calculated on the basis of ------selling rate

A. Interbank
B. Merchant
C. Spot
D. Security

ANSWER: A

122. Exchange margin enters into the bills selling rate

A. One time only
B. Twice
C. Three times
D. None of the above

ANSWER: B

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123. The bills selling rate is calculated by adding exchange margin to the
A. TT buying rate
B. TT selling rate
C. Bills buying rate
D. Bills selling rate

ANSWER: B

124. In India exchange rates for foreign currencies other than US dollar are
calculated as
A. TT buying rate
B. Cross rates
C. TT sellling rate
D. Bill sellling rate

ANSWER: B

125. -------- are authorised to carry out all current account and capital account
transaction.
A. Authorised Dealer - Category I
B. Authorised Dealer - Category II
C. Authorised Dealer - Category II
D. Money changers

ANSWER: A

126. FEDAI was established in

A. 1956
B. 1957
C. 1958
D. 1959
ANSWER: C

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127. FEDAI has its headquarters at
A. Delhi
B. Mumbai
C. Kolkatta
D. Bangalore

ANSWER: B

128. With regard to charging of commission, quotation of rates, etc., the

authorised dealer should also comply with the rules of
A. RBI
B. FEDAI
C. Central Government
D. Bank

ANSWER: B

129. The system under which maintenance of external value of the currency at a
predetermined level is
A. Fixed exchange rate
B. Floating exchange rate
C. Gold standard
D. Par value system

ANSWER: A

130. In a pure form fixed exchange rate system the exchange rate for currency is
determined by the -------
A. Demand forces
B. Supply forces
C. Government
D. Banks

ANSWER: C

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131. The reduction in the value of a currency due to market forces is known as
A. Appreciation
B. Revaluation
C. Depletion
D. Depreciation

ANSWER: D

132. The purchase or sale of foreign exchange by the central bank of the country
to influence the exchange rate is known as ----
A. Appreciation
B. Official Intervention
C. Depreciation
D. Inflation

ANSWER: B

133. Paper currency was used for internal use and gold was used for
international settlement under --------- standard
A. IMF
B. Gold bullion
C. Fixed
D. Floating

ANSWER: B

134. Rupee is partially convertible on

A. Current account
B. Vostro account
C. Capital account
D. Nostro account

ANSWER: C

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135. Convertibility of rupee refers to its convertibility into a ______ as desired by
its holder.
A. Foreign Currency
B. Local Currency
C. Bank Notes
D. Demand Draft

ANSWER: A

136. IMF classifies Indian currency system as

A. Currency Board Arrangements
B. Independently floating
C. Managed floating with no predetermined path for the exchange rate
D. Exchange rates within crawling banks

ANSWER: C

137. Balance of payment records ---------transactions of the country with outsiders

A. economic
B. debit
C. credit
D. cash

ANSWER: A

138. For balance of payments statistics, visible trade refers to trade in

A. Goods only
B. Service only
C. Goods/commodities
D. Gold

ANSWER: C

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139. Generally imports are recorded at ---------- value in balance of payments
A. FOB
B. CIF
C. CPT
D. CIP

ANSWER: B

140. Generally exports are recorded at ------value in balance of payments

A. FOB
B. CIF
C. CPT
D. CIP

ANSWER: A

141. Difference in balance of payments due to statistical discrepancies are

recorded as
A. Balance of Trade
B. Balance of Payment
C. Errors and Omissions
D. Deficit

ANSWER: C

142. A 'credit in balance of payments indicates

A. accumulation of bank balances abroad
B. foreign direct investment received into the country
C. earning of foreign exchange by the country
D. earning of foreign exchange or incurring of liability abroad or decrease in
asset abroad

ANSWER: D

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143. A debit in balance of payments does not indicate
A. import of goods and services
B. foreign tourist’s encashing travellers cheque in the country
C. investments made abroad
D. none of the above

ANSWER: B

144. The current account of balance of payments includes

A. Unilateral Payments
B. Portfolio Investments
C. Short Term Borrowings
D. Long Term Borrowings

ANSWER: A

145. The balance of payment does not include

A. transactions in real assets
B. transactions of financial claims
C. transactions between two non-residents
D. transactions in gold

ANSWER: C

146. Country A imports gold worth USD 100 million for commercial purposes.
The transaction will affect
A. Current Account Only
B. Capital Account Only
C. Official Reserves Account Only
D. Both Current Account and Capital Account

ANSWER: D

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147. Basic balance in balance of payments refers to
A. The balance of payments on current account
B. The combined balance of current and capital accounts
C. The balance in official reserves account
D. The total of balance of current account and balances on long term items in
capital account.

ANSWER: D

148. Autonomous transactions in balance of payments take place

A. Only among private individuals
B. Without the approval of the government
C. Generally for profit motive
D. As an effect of exchange rate changes

ANSWER: C

149. Exchange control as a method of correcting balance of payments

disequilibrium does not include
A. exchange restriction
B. exchange reserves
C. exchange intervention
D. exchange clearing arrangement

ANSWER: B

150. The strategy of deflation employed to correct balance of payments deficit

includes use of
A. Monetary policy
B. Fiscal policy
C. Both fiscal and monetary policy
D. Exchange rate policy

ANSWER: C

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