INTERNATIONAL FINANCE - UNIT 1 MCQS

T.Y B.COM

SEMESTER - 6

INTERNATIONAL FINANCE 

(IF) 

MCQS - UNIT 1

FOREIGN EXCHANGE RATE AND INSTRUMENTS FOR EXTENT PAYMENTS 

1. Foreign exchange means

(a) Foreign currency 

(b) Foreign money 

(c) Price of Foreign currency 

(d) both (a) and (b)

2. Foreign exchange rate means

(a) Foreign currency

(b) Price of Foreign currency

(c) Rate of exchange between domestic currency and foreign currency

(d) Both (a) and (b)

3. Which of the following is used along with the letter of credit?

(a) Traveler's cheque 

(b) Bank draft 

(c) Foreign bills 

(d) Telegraphic transfer

4. Which of the following ensures the sufficiency of funds in importer's Bank account? 

(a) Bank draft

(b) Traveler's cheque

(c) Telegraphic transfer

(d) Letter of credit

5. Which of the following is frequently used by the foreign tourists?

(a) Traveler's cheque 

(b) Bank draft 

(c) Foreign bills 

(d) Telegraphic transfer 

FOREIGN EXCHANGE MARKET 

1. Whenever the buyer of the foreign exchange intends to buy the foreign exchange on delivery basis to satisfy his current needs, he prefers to buy at

(a) Spot Rate 

(b) Equilibrium rate

(c) Forward rate 

(d) None of them

2. Which of the following is being used to minimize the risk associated with the foreign exchange market fluctuations.

(a) Speculation

(b) Premium rate

(c) Hedging

(d) Spot rate

3. Which of the following is true in case of hedging?

(a) A buyer prefers to buy at a spot rate

(b) A buyer waits till the date of buying and then buys in future at the previous rate in future

(c) A buyer prefers to buy at a forward rate

4. Which of the following is exactly opposite to the hedging?

(a) Forward transaction 

(b) Speculation 

(c) Future spot rate

(d) None of them

5. If a forward rate is greater than the spot rate, it is known as-

(a) Equilibrium rate

(b) Discount rate 

(c) Premium rate

(d) None of them

FOREIGN EXCHANGE  RATE DETERMINATION 

1. In which of the following the foreign exchange rate is determined just similar to determining the price of a commodity on the basis of demand and supply?

(a) Post Gold standard

(b) Gold standard

(c) Free market

(d) All of them

2. The demand for foreign exchange denotes.

(a) BOP debit

(b) Lending

(c) Spending

(d) All of them

3. The supply of foreign exchange denotes

(a) Borrowing 

(b) BOP credit

(c) Earning

(d) All of them

4. Which of the following occurs, when demand for foreign exchange becomes equal to supply?

(a) Foreign exchange market is cleared

(b) BOP in equilibrium

(c) None of them

(d) Both (a) and (b)

5. When actual rate is above equilibrium foreign exchange rate, it shows

(a) Over valuation of foreign currency and under valuation of domestic currency

(b) Over valuation of domestic currency and under valuation of foreign currency

(c) Devaluation of foreign currency

(d) Devaluation of home currency

6. When there is a shortage of foreign exchange in the free market, it creates an upward movement in the exchange rate. It means

(a) Appreciation of foreign currency and depreciation of domestic currency

(b) Appreciation of foreign currency and devaluation of domestic currency

(c) Appreciation of domestic currency and depreciation of foreign currency

(d) None of them

7. The demand curve of foreign exchange creates upward shift due to

(a) Rise in import propensity

(b) Rise in demand for foreign capital

(c) Outward looking strategy

(d) All of the above

8. The demand curve of foreign exchange creates downward shift due to

(a) Fall in import propensity

(b) Fall in demand for foreign capital

(c) Inward looking strategy

(d) All of the above

9. The supply curve of foreign exchange creates upward shift due to

(a) Success of export promotion programme

(b) Improvement in TOT

(c) Rise in Unilateral payments by foreigners

(d) All of them

10. When there is an increase in supply of foreign exchange at the given foreign exchange rate, it shows ________ in BOP, at that rate of exchange.

(a) Deficit

(b) Surplus

(c) Equilibrium

(d) None of them

11. When there is decrease in demand for foreign exchange at the given foreign exchange rate, it shows __________ In BOP at that rate of exchange.

(a) Deficit 

(b) Surplus

(c) Equilibrium

(d) None of them

12. When there is a decrease in supply of foreign exchange at the given foreign exchange rate, it shows ___________ in BOP, at that rate of exchange.

(a) Deficit

(b) Surplus 

(c) Equilibrium

(d) None of them

13. When there is a increase in demand for foreign exchange at the given foreign exchange rate, it shows __________ In BOP at that rate of exchange.

(a) Deficit

(b) Surplus

(c) Equilibrium 

(d) None of them

PURCHASING POWER PARITY THEORY 

1. PPP theory was formulated by

(a) Gustav Cassel

(b) Krugman

(c) David Ricardo

(d) Wheatley

2. PPP theory was emerged during.

(a) Prior to Gold standard

(b) Gold standard

(c) Post World War 1

(d) None of them

 

3. Which theory was being used for exchange rate determination during Gold standard?

(a) Mint Parity theory

(b) PPP theory

(c) Free market based

(d) None of them

4. Which of the following currency is convertible currency?

(a) Metallic currency using different metals

(b) Paper currency

(c) Metallic currency having same mint contents

(d) None of them

5. Why the Mint parity theory has become obsolete?

(a) Inconvertibility of paper Currency

(b) Most of the currency uses paper and not gold

(c) Free international of gold is not possible

(d) All of them

6. PPP theory suggests that when 2 currencies are exchanged against each other, there should be 

(a) Exchanged of equal amount of purchasing power between them

(b) Exchange of unequal amount of purchasing power between them

(c) Exchange of  equal amount of gold content between them

(d) Equality of demand and supply of foreign exchange 

7. Why did absolute version of the PPP theory criticize? 

(a) Different level of technology

(b) Differences in demand conditions

(c) Differences in the government policies

(d) All of them 

8. In the Relative version of PPP theory the ratio of Pb1 to Pb o denotes the PIN of the

(a) Home country 

(b) Foreign country 

(c) Rest of the word

(d) None of them

9. What kind of relationship is presumed or proved between change in price level and change in foreign exchange rate by the PPP theory? 

(a) Uncertain

(b) Direct

(c) Inverse 

(d) None of them 

10. If the price level in the foreign country rises more than that of in the home county, which of the following is true?

(a) R1 < R2

(b) R1 > R2

(c) Rl = R2

(d) None of them

11. Which of the following account of the BOP in neglected by the PPP theory? 

(a) Capital account

(b) Current account

(c) Unilateral trans. Account

(d) None of them

BALANCE  OF PAYMENT 

1. Which of the following international transactions are recorded by the BOP?

(a) Real transactions 

(b) Financial transactions 

(c) Both (a) and (b)

(d) None of them

2. Balance of payment is a

(a) According concept 

(b) Economic concept 

(c) Both (a) and (b) 

(d) None of them

3. When all credits are exactly equal with all debits in the BOP as a whole, it means

(a) BOP in equilibrium

(b) BOP in disequilibrium 

(c) Accounting balance

(d) None of them 

4. Current account of the BOP shows

(a) Real transactions 

(b) Financial transactions

(c) Both (a) and (b)

(d) None

5. Capital account of the BOP shows

(a) Real transactions

(b) Financial transactions

(c) Both (a) and (b)

(d) None

6. Which part of the BOP is covered by the BOT?

(a) Capital account

(b) Current account 

(c) Visible items of current account 

(d) None

7. Which of the following is covered in the current account of BOP?

(a) Visible items 

(b) Invisible items 

(c) Unilateral transfers

(d) All of them

8. When any foreigner indemnifies an Indian and when he makes the indemnification it will be

(a) BOP debit transaction

(b) BOP credit transaction

(c) BOP receipts

(d) Both (b) and (c)

9. Which of the following is covered by the capital account of the BOP?

(a) International institutional cap a/c

(b) Private capital a/c

(c) Specie a/c

(d) All of them 

10.  Which account of the BOP records tne International movement of gold or bullion?

(a) BOT 

(b) Current Account 

(c) Specie account 

(d) Unilateral transfer account

11. Which of the following is termed as above line transactions in BOP? 

(a) Current account transactions

(b) Autonomous transactions

(c) Capital account transactions

(d) Accommodating transactions

12. Which of the following is termed as the cause of the BOP situation?

(a) Current account transactions

(b) Autonomous transactions

(c) Capital account transactions

(d) Accommodating transactions

13. When a country exports Gold to another country as a means of international liquidity, it is

(a) Autonomous transaction

(b) Autonomous transactions

(c) Current account transaction

(d) None of them

14. For accounting purpose, all transactions are treated as ________ transactions, but for international liquidity, they are treated as _________

(a) Autonomous, Accommodating 

(b) Accommodating, Autonomous

(c) Current, Capital

(d) None

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