T.Y B.COM
SEMESTER - 6
INTERNATIONAL FINANCE
MCQS - 2018
1. Autonomous adjustment with flexibility in price assumes
(A) Monetary and fiscal policy to regulate prices
(B) Accumulated foreign exchanges reserves
(C) Fixed exchange rate system
(D) All of the above
2. Though simple countries do not adopt automatic mechanism to correct BOP disequilibrium because
(A) Surplus countries are ready to produce inflation, capital outflow and excess investment
(B) Countries are not ready to sacrifice internal stability for the sake of external balance.
(C) Deficit countries are prepared to allow prices, income to fall
(D) All of the above
3. Equilibrium in exchange rate is that rate which over a certain period of time, keeps
(A) The balance of current account in equilibrium
(B) The balance of trade in equilibrium
(C) The balance of the payment in equilibrium
(D) The balance of capital account in equilibrium
4. What is the relationship between foreign exchange rate demand for foreign exchange?
(A) Direct
(B) Inverse
(C) Neutral
(D) None of the Above
5. Which of these function of the foreign exchange market facilities the conversion of one currency into another?
(A) Transfer function
(B) Credit function
(C) Hedging function
(D) None of the above
6. According to PPP theory the exchange rate between two countries is determined at a point which
(A) The equality between respective interest rates of two countries, on a moving par
(B) The equality between respective interest rates of two countries, on a fixed par
(C) The equality between respective purchasing power of two countries, on a moving par
(D) The equality between respective purchasing power of two countries, on a fixed par
7. When accounting balance is produced with the help of accommodation transactions, there is said to be
(A) Basic balance
(B) Overall balance
(C) BOP settlement
(D) BOP adjustment
8. Which of these is not an ‘above the line’ transaction?
(A) General motors invests in a car plant in India
(B) Indian government purchases dollars from the IMF in exchange of gold
(C) Vinit makes import payments to max
(D) Vikas who works in Canada remits money to his family in India
9. An exchange rate below its equilibrium rate leads to
(A) BOP surplus and undervalued domestic currency.
(B) BOP surplus and overvalued domestic currency.
(C) BOP deficit and overvalued domestic currency.
(D) BOP deficit and undervalued domestic currency.
10. IN the balance of payment account, the unilateral transfer payments are included in which one of the following?
(A) Service account
(B) Capital account
(C) Current account
(D) Official reserve account
11. Choose the correct order of the following balances in terms of their logical sequence
(A) Capital account balance – current account balance – basic balance – overall balance
(B) Basic balance – current account balance – overall balance – accounting balance
(C) Current account balance – basic balance – overall balance – full employment balance
(D) Basic balance – balance of trade – current account balance – full employment balance
12. In which of the following condition, devaluation is not appropriate measure for correcting the balance of payment equilibrium?
(A) Import elasticity is equal to one
(B) Export elasticity is equal to one
(C) No international cooperation
(D) None of the above
13. The _____________ version of the PPP theory states that changes in the equilibrium rate of exchange will be governed by the changes in the ratio of respective purchasing powers of the countries.
(A) Original
(B) Absolute
(C) Relative
(D) Absolute and original
14. Which of the following is not an instrument of external payment?
(A) Foreign direct investment
(B) Foreign bills of exchange
(C) Travelers cheques
(D) Bank letters of credit
15. Which of these is a function of the foreign exchange market?
(A) Transfer function
(B) Hedging function
(C) Credit function
(D) All of the above
16. If any economy enjoying balance of payment surplus then what are the changes during the fixed exchange rate ?
(A) Increase national income
(B) Increase price level
(C) Decrease interest rate
(D) All of the above
17. The purchasing power parity (ppp) theory of the exchange rate implies that the currency of country A would depreciate against that of country B if:
(A) The growth rate of GDP in B exceeds that in A.
(B) The normal interest rate in A exceeds that in B.
(C) The inflation rate in A exceeds that in B.
(D) None of the above.
18. ___________ is quite sensitive to speculative trends in foreign exchange. complete the sentence from the following:
(A) Tariffs
(B) Trade policies of the government
(C) Spot exchange rate
(D) Forward exchange rate
19. Which of the following statements in incorrect?
(A) Speculators are risk takers
(B) Hedgers are risk takers
(C) Hedgers enter into forward transactions
(D) Hedgers are cautions and risk averse
20. Which is not accepted as the legal instrument of external payments?
(A) Latter of credit
(B) Bank drafts
(C) Telegraphic transfer
(D) Virtual – money
21. Deficit in BOP may not be undesirable if it
(A) Is of a temporary nature on account of crop failure
(B) Arises because of current account deficit
(C) Is fundamental and persistent
(D) None of the above
22. Which of the following can bring equilibrium in deficit balance of payment?
(A) Increase in interest rate
(B) Decrease in price level
(C) Decrease in income level
(D) Combination of above all
23. An act of devaluation of a currency, other things being equal, will
(A) Increase in quantum of exports and decrease in quantum of imports
(B) Decrease in quantum of both export and imports.
(C) Increase in quantum of both exports and imports.
(D) Decrease in quantum of export and increase in quantum of imports
24. Devaluation is
(A) Effective when export and import of the country are inelastic.
(B) Market determined revaluation of external value of the domestic currency
(C) Deliberate appreciation in the external value of the domestic currency by the government
(D) Deliberate lowering of the external value of the domestic currency by the government
25. Supply of foreign exchange does not include
(A) Receipts of unilateral transfer payments
(B) Borrowing from foreign government
(C) Capital export
(D) Goods and service export
26. All of debit and credit entries in the international liquidity account are to be regarded as:
(A) Accommodating transactions
(B) Autonomous transactions
(C) True balance transactions
(D) None of the above
(A) Decrease the price of foreign currency
(B) Increase the price of domestic currency
(C) Increase the demand for imports
(D) Increase the price of foreign currency
28. Under the automatic Mechanism of BOP adjustment
(B) M > X → gold outflow → MS↑→ r ↑→ l ↑→ Y ↑→ M ↑, & therefore restoration of BOP equilibrium
(C) M > X → gold outflow → MS↓→ r ↑→ l ↑→ Y ↑→ M ↑, & therefore restoration of BOP equilibrium
(D) M > X → gold outflow → MS↓→ r ↑→ l ↓→ Y ↓→ M ↓, & therefore restoration of BOP equilibrium
29. Which of the following statement is not the monetary measure of correcting disequilibrium in balance of payment?
(A) Deflation
(B) Exchange depreciation
(C) Devaluation
(D) Duties on import and export
30. The rate of exchange can be define as
(A) The price of nation’ s monetary unit in terms of foreign currency.
(B) The rate at which the currency of one is converted into US dollars
(C) The rate of exchange in capital market of a country
(D) The internal value of a country’s currency
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