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WorksheetsForeign Exchange Market in India SSK
Total questions: 68
Worksheet time: 49mins
What is Foreign Exchange Market?
A place where corporation and government can raise fund.
A market for converting currency of one country into that of another country.
Trading of instrument by an exchange of securities.
How can the government of foreign country influence the equilibrium exchange rate?
impose forex barriers
Impose foreign trade barriers
Intervene by buying and selling currency
All above
When a tourist goes to a bank in a foreign country to convert money into the local
currency, the exchange rate used is the forward rate.
True
False
To minimize the risk of an unanticipated change in exchange rates, a company can
protect itself by entering into a forward exchange contract.
True
False
The short-term movement of funds from one currency to another in the hopes of
profiting from shifts in exchange rates is known as:
currency speculation
currency arbitrage
currency hedge
currency risk mitigation
The _____ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.
rational price theory
model of fair pricing
principle of consistent price
law of one price
Assume that the law of one price holds. A shirt that retails for $120 in New York sells for £60 in London. The exchange rate between the British pound and the dollar is £1 = $1.50. Assuming away transportation costs and trade barriers, this creates a profit- making opportunity called _____.
currency swap
carry trade
arbitrage
straddle
Which of the following occurs when traders start moving as a herd in the same direction at the same time?
fisher effect
bandwagon effect
currency swap
arbitrage
FOREX is
Foreign exchange or foreign currency
Foreign country
Share market
FOREX RATE is
Domestic currency
Value of domestic currency in terms of foreign currency
foreign currency
Under which system Demand and supply for FOREX determines the exchange rate
Flexible exchange rate
Fixed exchange rate
Both
Depreciation is
Fall in the value of domestic currency in terms of foreign currency
Rise in the value of domestic currency in terms of foreign currency
none
Devaluation is
Fall in the value of domestic currency in terms of foreign currency as a deliberate step adopted by the govt. under Fixed exchange rate system
Rise in the value of domestic currency in terms of foreign currency as a deliberate step adopted by the govt. under Fixed exchange rate system
Fall in the value of domestic currency in terms of foreign currency as a deliberate step adopted by the govt. under FLEXIBLE exchange rate system
Appreciation of domestic currency will
Encourage imports
Encourage Exports
Discourage imports
Under flexible system exchange rate is determined where
Demand for FOREX=Supply of FOREX
Demand for Forex > Supply of FOREX
By Government
Which of the following is a source of FOREX supply
Imports
Exports
Direct purchase in abroad
Stability is a merit of
Fixed exchange rate system
Flexible exchange rate system
Both
dirty floating is related to-
fixed exchange rate
flexible system of exchange rate
imports of goods and services raises the ................................of foreign exchange.
supply
demand
flexible exchange rate system is also known as -
dirty floating
floating exchange rate
devaluation of currency means-
reduction in the value of domestic currency by the market forces
reduction in the value of domestic currency by the government
Under which system, gold was taken as the common unit of parity between currencies of different countries in circulation?
Bretton woods system of exchange rate
Gold Standard System of exchange rate
Flexible exchange rate system
Managed floating system of exchange rate
Out of the following, which is the most rigid exchange rate system, which does not allow any adjustment in the exchange rate?
Flexible exchange rate system
Gold Standard System of exchange rate
Bretton Woods system of exchange rate
None of these
The rate which is determined by the government is known as :
Flexible exchange rate
Fixed exchange rate
Floating exchange rate
None of these
The exchange rate at which demand for foreign currency becomes equal to its supply, is called:
Equal rate of exchange
Mint parity
Equilibrium exchange rate
All of the these
When supply of foreign exchange increases, the equilibrium exchange rate will
Rise
Fall
Not change
Either rise or fall
When the exchange rate Rises due to managed floating, it is called;
Devaluation
Appreciation
Depreciation
Revaluation
Which of the following functions are performed in a foreign exchange market?
Transfer function
Credit function
Hedging function
All of these
Spot market is the market where;
Only current transactions are handled
Forward rate of exchange is determined
All of the above
None of these
Forward market is that market which:
Handles transactions of foreign exchange meant for future delivery
Handles current transactions
Handles current as well as future transactions
None of these
If rupees 120 are required to buy $2, instead of rupees 100 for $1 earlier, than:
Domestic currency has appreciated
Domestic currency has depreciated Aad
None of these
Both are correct
The value of a country’s currency will tend to appreciate if
demand for the country’s exports increases
the country’s money supply increases
the country’s citizens increase their travel abroad
domestic interest rates decrease
tariffs on the country’s imports decrease
Identify the most traded currency around the world.
US Dollar
Malaysian Ringgit
Euro
Yuan
Devaluation and Revaluation of the (domestic) currency occurs under:
Fixed exchange rate
Flexible exchange rate
Depreciation and Appreciation of the (domestic) currency occurs under:
Fixed exchange rate
Flexible exchange rate
Identify the second most traded currency around the world.
US Dollars
Indian Rupee
Euro
Yuan
India's foreign exchange system is
Free float
Fixed
Managed float
None
India is facing continuous deficit in BOP. In the foreign exchange market, rupee is expected to
Depreciate
Appreciate
No specific tendency
All of the above
________ is a commodity that consists of currencies issued by countries other than one's own.
Eurozone
Foreign exchange
Floating exchange
Direct exchange
The primary purpose of the foreign-exchange market is to
encourage globalization
assist developing countries
facilitate currency conversions
stabilize the currency exchange rate
________ attempt to exploit small differences in the price of a currency between markets by buying currencies in lower-priced markets and selling in higher-priced markets.
Commercial customers
Speculators
Arbitrageurs
Individuals
In the world of spot markets, what is the meaning of immediately?
two days after the trade date
three days after the trade date
on the trade date
simultaneous due to electronic transfers
What term refers to a currency on deposit outside its country of issue?
Eurocurrency
Eurodollar
Euroyen
Europound
The theory of ________ states that the prices of tradable goods, when expressed in a common currency, will tend to equalize across countries as a result of exchange rate changes.
supply and demand
purchasing power parity
arbitrage
competitive advantage
Why do changing exchange rates help one country and hurt the other?
One side loses purchasing power and the other gains it
Takes money away from one side and gives it to the other
Causes war between the two countries
One country's government introduces tariffs to protect local industries
What type of exchange rate system do most countries operate under?
Flexible
Floating
Fictitious
Fixed
What is the difference between a fixed rate exchange system and a floating rate system?
Government sets rate vs market sets rate
Doesn't exist vs does exist
Never changing vs always changing
Currency never appreciates vs can appreciate
How does inflation rate affect currency value/exchange rate?
Higher inflation leads to depreciating currency & vice versa
Increasing inflation leads to more favourable exchange rates
Higher inflation leads to currency appreciation
Lower inflation leads to more favourable exchange rate
If the Mexican Peso depreciates in relation to the Chinese Yuan, how is Mexico affected?
Mexico has less purchasing power in Chinese currency
Mexico benefits from increased purchasing power
Mexico would have more Chinese investors
They would be invaded by China
When the US$ exchange rate falls it will usually
help to reduce a US trade deficit.
increase the foreign price of US exports.
reduce the price of US imports.
reduce US inflation
In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro, the price is the ________.
spot exchange rate
money exchange rate
forward exchange rate
fixed exchange rate
Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.
more; less
more; more
less; less
less; more
Higher tariffs and quotas cause a country's currency to ________ in the ________ run, everything else held constant.
depreciate; short
appreciate; short
depreciate; long
appreciate; long
Everything else held constant, increased demand for a country's ________ causes its currency to appreciate in the long run, while increased demand for ________ causes its currency to depreciate.
imports; imports
imports; exports
exports; imports
exports; exports
________ in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant.
An increase; appreciate
An increase; depreciate
A decrease; appreciate
A decrease; depreciate
When does revaluation of currency occur?
When Demand for domestic currency increases
When domestic govt set exchange rate above the equilibrium exchange rate
When Demand for foreign currency increases
When domestic govt set exchange rate below the equilibrium exchange rate
What is the other name for devaluation?
Depreciation
Overvalued currency
Undervalued currency
Revaluation
When a currency depreciates:
Trade account balance of balance of payment improves
It will result in cost push inflation if imports are finished goods
It will lead to demand pull inflation
AD curve shifts to left
Increase in investment in abroad will result
Devaluation of domestic currency
Depreciation of domestic currency
Appreciation of domestic currency
Revaluation of domestic currency
The ________ consists of foreign-exchange transactions that are to occur sometime in the future.
spot market
soft currency market
bond market
forward market
When the exchange rate Rises due to managed floating, it is called;
Devaluation
Appreciation
Depreciation
Revaluation
SWIFT stands for:
Scheme for Worldwide International Financial Telecommunications
Society for Worldwide International Financial Telecommunications
Society for Worldwide International Financial Technology
Society for Worldwide Indian Financial Telecommunications
______ links banks & brokers & electronically generates Spot Rates among international currencies.
FEDAI
SWIFT
RBI
SEBI
______ are usually quoted as _______, on the basis of a discount or premium over current rates.
Spot Rates; Outright or Swap
Forward Rates; Outright only
Forward Rates; Outright or Swap
Spot Rates; Outright only
Currency of a country with _________ will be at a ________.
lower interest rates; forward discount
higher interest rates; forward premium
lower interest rates; forward premium
