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All questions of International Financial Environment for B Com Exam
What is meant by the term "spot exchange rate"?- a)The exchange rate for future currency transactions.
- b)The rate at which currencies are bought and sold immediately.
- c)The rate at which credit is provided for foreign trade.
- d)The rate at which currencies are exchanged in forward contracts.
Correct answer is option 'B'. Can you explain this answer?
a)
The exchange rate for future currency transactions.
b)
The rate at which currencies are bought and sold immediately.
c)
The rate at which credit is provided for foreign trade.
d)
The rate at which currencies are exchanged in forward contracts.
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Dev Patel answered |
The spot exchange rate refers to the rate at which currencies are bought and sold immediately in the foreign exchange market.
What is the primary purpose of the forward market in foreign exchange?- a)To conduct immediate currency transactions.
- b)To speculate on future exchange rates.
- c)To fix exchange rates for future transactions.
- d)To transfer purchasing power between countries.
Correct answer is option 'C'. Can you explain this answer?
a)
To conduct immediate currency transactions.
b)
To speculate on future exchange rates.
c)
To fix exchange rates for future transactions.
d)
To transfer purchasing power between countries.
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Dev Patel answered |
The primary purpose of the forward market is to fix exchange rates for future transactions, allowing parties to agree on a rate today for a transaction at a future date.
What is the primary objective of hedging in the context of foreign exchange risk management?- a)To make a profit through speculation.
- b)To minimize the risk of loss due to exchange rate fluctuations.
- c)To avoid all foreign exchange transactions.
- d)To maximize credit for foreign trade.
Correct answer is option 'B'. Can you explain this answer?
a)
To make a profit through speculation.
b)
To minimize the risk of loss due to exchange rate fluctuations.
c)
To avoid all foreign exchange transactions.
d)
To maximize credit for foreign trade.
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Dev Patel answered |
The primary objective of hedging is to minimize the risk of loss due to exchange rate fluctuations. It aims to protect against adverse movements in exchange rates.
Which external technique for hedging foreign exchange risk involves swapping equivalent amounts of currency for a specified period?- a)Forward Contracts
- b)Forex Swaps
- c)Futures Contracts
- d)Currency Options
Correct answer is option 'B'. Can you explain this answer?
a)
Forward Contracts
b)
Forex Swaps
c)
Futures Contracts
d)
Currency Options
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Dev Patel answered |
Forex swaps involve swapping equivalent amounts of currency for a specified period, making them an external technique for hedging foreign exchange risk.
Which type of foreign exchange market transaction involves the immediate settlement of receipts and payments?- a)Spot Market
- b)Forward Market
- c)Futures Contracts
- d)Currency Swaps
Correct answer is option 'A'. Can you explain this answer?
a)
Spot Market
b)
Forward Market
c)
Futures Contracts
d)
Currency Swaps
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Dev Patel answered |
The spot market involves the immediate settlement of receipts and payments, and it deals with spot transactions of foreign exchange.
What is the primary difference between transaction risk and economic risk in foreign exchange?- a)Transaction risk relates to short-term cash flows, while economic risk involves longer-term effects on market value.
- b)Transaction risk is associated with imports, while economic risk is related to exports.
- c)Transaction risk focuses on internal hedging techniques, while economic risk relies on external methods.
- d)Transaction risk is easily quantifiable, while economic risk is difficult to measure.
Correct answer is option 'A'. Can you explain this answer?
a)
Transaction risk relates to short-term cash flows, while economic risk involves longer-term effects on market value.
b)
Transaction risk is associated with imports, while economic risk is related to exports.
c)
Transaction risk focuses on internal hedging techniques, while economic risk relies on external methods.
d)
Transaction risk is easily quantifiable, while economic risk is difficult to measure.
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Dev Patel answered |
The primary difference is that transaction risk relates to short-term cash flows, such as those in imports and exports, while economic risk encompasses longer-term effects on a company's market value.
What is an advantage of using currency options for hedging foreign exchange risk?- a)They provide a fixed exchange rate for future transactions.
- b)They are less expensive than forward contracts.
- c)They offer asymmetric risk exposure.
- d)They allow flexibility to benefit from favorable exchange rate movements.
Correct answer is option 'D'. Can you explain this answer?
a)
They provide a fixed exchange rate for future transactions.
b)
They are less expensive than forward contracts.
c)
They offer asymmetric risk exposure.
d)
They allow flexibility to benefit from favorable exchange rate movements.
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Dev Patel answered |
Currency options provide flexibility as they allow the holder to benefit from favorable exchange rate movements and exercise the option if needed to protect against adverse movements.
Which type of foreign exchange market transaction involves an exchange of interest rate commitments on borrowings in different currencies?- a)Forward Contracts
- b)Forex Swaps
- c)Futures Contracts
- d)Currency Swaps
Correct answer is option 'D'. Can you explain this answer?
a)
Forward Contracts
b)
Forex Swaps
c)
Futures Contracts
d)
Currency Swaps
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Dev Patel answered |
Currency swaps involve an exchange of interest rate commitments on borrowings in different currencies, making them a type of foreign exchange market transaction.
What is the primary function of the foreign exchange market?- a)To provide credit for foreign trade.
- b)To conduct spot transactions of foreign exchange.
- c)To transfer purchasing power between countries.
- d)To speculate on currency exchange rates.
Correct answer is option 'C'. Can you explain this answer?
a)
To provide credit for foreign trade.
b)
To conduct spot transactions of foreign exchange.
c)
To transfer purchasing power between countries.
d)
To speculate on currency exchange rates.
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Dev Patel answered |
The primary function of the foreign exchange market is to transfer purchasing power between countries. This means facilitating the exchange of one country's currency for another to enable international trade and transactions.
In the context of foreign exchange, what does "leading and lagging" refer to?- a)A strategy to achieve a fixed exchange rate for all transactions.
- b)The practice of delaying or expediting payments to benefit from exchange rate movements.
- c)A method of internal hedging for economic exposure.
- d)The use of currency options to hedge transaction risk.
Correct answer is option 'B'. Can you explain this answer?
a)
A strategy to achieve a fixed exchange rate for all transactions.
b)
The practice of delaying or expediting payments to benefit from exchange rate movements.
c)
A method of internal hedging for economic exposure.
d)
The use of currency options to hedge transaction risk.
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Dev Patel answered |
"Leading and lagging" refers to the practice of delaying or expediting payments to benefit from exchange rate movements in foreign exchange transactions.
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