50+ Foreign Exchange Market MCQ’s | (Free Resource) Business Economics
Foreign Exchange Market MCQ
1. Hedging refers to _______ .
a) the covering of a foreign exchange risk
b) foreign exchange speculation, the acceptance of foreign exchange risk
c) interest rate arbitrage
2. Under flexible exchange rate system, exchange rate is determined by _______ .
a) the demand and supply of foreign exchange
b) Central Bank intervention
c) the price of gold
d) none of the above
3. Functions of forex market include ________ .
a) all the below
b) provision of facilities for funds transfer
c) trading, short term finance
4. Which of the following is not a function of the foreign exchange market?
a) Import and export of goods and services
b) transfer of purchasing power
c) coverage of risk
d) provision of credit instruments and credit
5. _______ helps to equalize the exchange rate in all part of the foreign exchange market.
a) speculation
b) interest arbitrage
c) hedging
6. Forward market in foreign exchange refers to _______ market.
a) Short and long run
b) a short run, a long run
c) a spot
7. Speculation in foreign exchange market refers to _______ .
a) accepting risk to make profits
b) hedging
c) interest arbitrage
d) none of the above
8. India adopts _________ exchange rate system.
a) managed flexibility
b) fixed exchange rate
c) flexible exchange rate
d) none of the above
9. The rate at which the foreign currency is exchanged at current rate is called ______ rate.
a) spot
b) forward
c) arbitrage
d) none of the above
10. Vehicle currency is ________ .
a) a standard internationally accepted currency
b) a currency of IMF
c) a currency issued by RBI
d) none of the above
| Answers: 1)the covering of a foreign exchange risk 2)the demand and supply of foreign exchange 3)all the below 4)Import and export of goods and services 5)speculation 6)Short and long run 7)accepting risk to make profits 8)managed flexibility 9)spot 10)a standard internationally accepted currency |
11. Arbitrage refers to purchase and sale of an asset _________ .
a) at low price in one market and its simultaneous sale at higher price in another market
b) at high price in one market and its sale at lower price in another market
c) purchase and sale at the same price
d) all of the above
12. _______ is not included in the wholesale foreign exchange market.
a) small investor
b) RBI
c) FII
d) Commercial Bank
13. Speculators deal in _________ .
a) spot and forward exchange rate
b) only spot exchange rate
c) only forward exchange rate
d) none of the above
14. Hedgers enter foreign exchange market to ________ .
a) cover risk
b) earn margin
c) speculate
d) none of the above
15. Foreign exchange market is a place where ________ .
a) various foreign currencies are exchanged
b) only foreign tourists exchange currencies
c) only exporters convert the foreign currencies
d) only importers convert the foreign currencies
16. Flexible exchange creates ______ in importers and exporters.
a) uncertainty
b) confidence
c) safety
d) none of the above
17. ________ is not a defect of flexible exchange rate.
a) Stability in international monetary system
b) speculation
c) structural unemployment
d) discourages investments
18. Under _________ exchange rate system, the exchange rate is determined by market forces.
a) flexible
b) fixed
c) managed float
d) all of the above
19. Under ________ exchange rate system, the central bank of a nation intervenes in exchange rate determination.
a) managed float
b) fixed
c) flexible
d) none of the above
20. Fixed exchange rate system, the exchange rate was ________ .
a) stable
b) unstable
c) fluctuating
d) all of the above
| Answers: 11)at low price in one market and its simultaneous sale at higher price in another market 12)small investor 13)spot and forward exchange rate 14)cover risk 15)various foreign currencies are exchanged 16)uncertainty 17)Stability in international monetary system 18)flexible 19)managed float 20)stable |
21. The modern foreign exchange market operates under _______ rate system.
a) floating
b) fixed
c) highly managed float
d) all of the above
22. In exchange rate determination, the first currency in the currency pair is called _______ currency.
a) base
b) soft
c) negotiable
d) hard
23. __________ is a feature of foreign exchange market.
a) operates 24 hours for 5 day in a week
b) operates 24 hours for all 7 days in a week
d) operates365 days in a year
d) none of the above
24. ________ is not a feature of foreign exchange market.
a) Limited Geographical Coverage
b) Highly Liquid Market
c) Huge Value Market
d) None of the above
25. _________ enables an investor to earn high returns while minimizing capital risks.
a) Leverage
b) Liquidity
c) Reserves
d) all of the above
26. Transactions in foreign exchange market have become quicker due to _________ .
a) advanced technology
b) Government Initiatives
c) IMF
d) World Bank
27. Society for Worldwide Interbank Financial Telecommunications(SWIFT) is a ________ communication network that facilitates 24-hour secure international exchange of payment instructions between banks,central banks, multinational corporations, and major securities firms.
a) Global
b) Local
c) National
d) None of the above
28. The function of foreign exchange market that helps in clearing international transactions is known as _______ .
a) transfer
b) credit
c) hedging
d) speculation
29. Provision of documentary bills of exchange in international payments is an example of ________ function.
a) creation of credit
b) transfer
c) speculation
d) hedging
30. The function of foreign exchange market, which is concerned with fixing of forward exchange rates is known as __________ .
a) Hedging
b) speculation
c) arbitrage
d) transfer)
| Answers: 21)floating 22)base 23)operates 24 hours for 5 day in a week 24)Limited Geographical Coverage 25)Leverage 26)advanced technology 27)Global 28)transfer 29)creation of credit 30)Hedging |
31. The foreign exchange rate of a nation is influenced by ________ .
a) all of the below
b) speculators
c) hedgers
d) arbitrators
32. The foreign exchange rate of a nation is influenced by _________ .
a) all of the below
b) BoP
c) Interest rate
d) speculation
33. _______ is not a feature of spot exchange rate.
a) Clearing of payment takes place fairly long period
b) demand and supply of foreign currency determines the rate
c) current exchange rate
d) all of the above
34. The demand for foreign currency arises due to _______ .
a) imports
b) exports
c) investments from abroad
d) none of the above
35. The supply of foreign currency is on account of _______ .
a) exports
b) imports
c) investments abroad
36. _______ rate is the rate at which a nation’s currency is exchanged for some other nation’s currency.
a) Exchange
b) Transfer
c) Negotiating
d) All of the above
37. The demand curve for foreign exchange slopes ________ indicating that when the exchange rate of foreign currency falls, the demand for it increases.
a) downwards
b) upwards
c) sideways
d) none of the above
38. The supply curve for foreign currency slopes _________ indicating that when the exchange rate of foreign currency increases, the supply of it increases.
a) upwards
b) downwards
c) sideways
d) all of the above
39. If there is more demand for foreign currency, the foreign currency will _______ .
a) appreciate
b) depreciate
c) nil effect
d) none of the above
40. When the demand curve for foreign currency, intersects the supply curve, we get _________ exchange rate.
a) equilibrium
b) premium
c) discount
d) par
| Answers: 31)all of the below 32)all of the below 33)Clearing of payment takes place fairly long period 34)imports 35)exports 36)Exchange 37)downwards 38)upwards 39)appreciate 40)equilibrium |
41. Theory of purchasing power parity __________ .
a) neglects capital account transactions
b) includes transportation cost
c) includes prices of nontraded goods
d) applies only in short run
42. Purchasing Power Parity Theory was propounded by _________ .
a) Gustav Cassel
b) David Ricardo
c) Adam Smith
d) None of the above
43. Purchase of foreign currency by the monetary authority _________ the appreciation of domestic currency.
a) prevents
b) aggravates
c) leads to
44. _________ is monetary authority’s intervention to prevent forex fluctuations through M Policy instruments.
a) Sterilized Intervention
b) bank rate
c) open market operations
d) Un-sterilized intervention
45. ________ is monetary authority’s Intervention by purchase/sale of foreign current to prevent fluctuations in foreign exchange.
a) Unsterilised Intervention
b) Sterilized intervention
c) bank rate policy
46. ________ of goods results in demand for foreign currency.
a) Import
b) export
c) sale in domestic market
d) none of above
47. _________ results in supply of foreign currency.
a) Unilateral receipts
b) unilateral payments
c) investment abroad
d) none of above
48. Equilibrium exchange rate is determined when ________ .
a) the demand curve for foreign currency intersects with supply curve
b) demand curve shifts upwards
c) supply curves slopes downwards
d) none of the above
49. Exchange rate between two currencies is based on ________ .
a) purchasing power of two currencies
b) economic development of the two nations
c) political stability in the two countries
d) none of the above
50. Critics of Purchasing Power Parity theory state that it has limited application for _______ countries.
a) Large
b) small
c) medium-sized
d) none of the above
| Answers: 41)neglects capital account transactions 42)Gustav Cassel 43)prevents 44)Sterilized Intervention 45)Unsterilised Intervention 46)Import 47)Unilateral receipts 48)the demand curve for foreign currency intersects with supply curve 49)purchasing power of two currencies 50)Large |
51. PPP Theory considers that goods in different countries are _______ .
a) Identical
b) differential
c) superior
d) non of the above
52. PPP Theory ignores capital flows on account of _________ .
a) capital account
b) trade account
c) current account
d) none of the above
53. There is a _______ relationship between demand for foreign currency and the exchange rate.
a) inverse
b) direct
c) straight
d) positive
54. There is a _______ relationship between supply of foreign currency and the exchange rate.
a) direct
b) inverse
c) negative
d) indirect
55. LERMS was introduced in India in ________ .
a) 1992
b) 2000
c) 2002
d) 2012
56. Under managed float, the central bank of a nation intervenes to ________ foreign currency.
a) purchase and sell
b) only purchase
c) only sale
d) none of the above
57. Under flexible exchange rate system, the exchange rate is determined by ________ .
a) market forces
b) central bank
c) commercial banks
d) none of the above
58. Under IMF, the exchange rate system was ______ .
a) gold standard
b) currency board system
c) dollarization
d) none of the above)
| Answers: 51)Identical 52)capital account 53)inverse 54)direct 55)1992 56)purchase and sell 57)market forces 58)gold standard |
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