International Finance Questions Quiz! Trivia
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Looking for an International finance questions quiz trivia? International finance gives one a look at how countries interact with each other when it comes to foreign direct investment, currency exchange rates and financial decisions. Do you know some of the securities traded across different countries? By taking the quiz you will get to refresh your memory on this course and what you can learn. Give it a shot and see how well you will do!
- 1.
The acronym SWIFT stands for
- A.
Safety Width in Financial Transactions
- B.
Society for Worldwide Interbank Financial Telecommunication
- C.
Society for Worldwide International Financial Telecommunication
- D.
Swift Worldwide Information for Financial Transaction
Correct Answer
B. Society for Worldwide Interbank Financial TelecommunicationExplanation
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. This organization provides a secure network for financial institutions worldwide to communicate and exchange information about financial transactions. The acronym accurately reflects the organization's purpose and global reach in facilitating interbank communication.Rate this question:
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- 2.
India is facing continuous deficit in its balance of payments. In the foreign exchange market rupee is expected to
- A.
Appreciate
- B.
Show no specific tendency
- C.
Depreciate
- D.
Depreciate against currencies of the countries with positive balance of payment and appreciate against countries
Correct Answer
C. DepreciateExplanation
India's continuous deficit in its balance of payments indicates that it is importing more goods and services than it is exporting. This creates a higher demand for foreign currency, causing the value of the Indian rupee to depreciate in the foreign exchange market. As a result, the correct answer is that the rupee is expected to depreciate.Rate this question:
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- 3.
The demand for domestic currency in the foreign exchange market is indicated by the following transactions in balance of payment.
- A.
Import of goods and services and capital outflows
- B.
Export of goods and services
- C.
Export of goods and services and capital inflows
- D.
Import of goods and services
Correct Answer
C. Export of goods and services and capital inflowsExplanation
The demand for domestic currency in the foreign exchange market is indicated by the export of goods and services and capital inflows. When a country exports goods and services, it receives payment in foreign currency. To convert this foreign currency into domestic currency, there is a demand for the domestic currency. Additionally, when there are capital inflows, such as foreign investment or loans, there is also a need to convert the foreign currency into domestic currency, leading to an increased demand for the domestic currency in the foreign exchange market.Rate this question:
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- 4.
If PPP holds
- A.
The nominal exchange rate will not change
- B.
Both real and nominal exchange rates will not change
- C.
Both real and nominal exchange will move together
- D.
The real exchange rate will not change
Correct Answer
D. The real exchange rate will not changeExplanation
If PPP holds, it means that the purchasing power of two different currencies is equal. In this case, the real exchange rate will not change because the relative prices of goods and services in both countries will remain the same. The nominal exchange rate may change due to factors such as inflation or changes in interest rates, but the real exchange rate, which takes into account inflation and reflects the purchasing power, will remain constant. Therefore, the correct answer is that the real exchange rate will not change.Rate this question:
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- 5.
The strike price under an option is
- A.
Lower of the market price and the agreed price
- B.
None of the above
- C.
The exchange rate which the currencies are agreed to be exchanged under the contract
- D.
The price at which the option is auctioned
Correct Answer
C. The exchange rate which the currencies are agreed to be exchanged under the contract -
- 6.
An option at-the-money when
- A.
The option has a ready market
- B.
The strike price and the spot price are the same
- C.
The strike price is greater than spot price, in the case of a put option
- D.
An option at-the-money when The strike price is greater than the spot price, in the case of a call option
Correct Answer
B. The strike price and the spot price are the sameExplanation
An option is considered at-the-money when the strike price, which is the predetermined price at which the option can be exercised, is equal to the spot price, which is the current market price of the underlying asset. In this scenario, the option is neither in-the-money (where the strike price is lower than the spot price) nor out-of-the-money (where the strike price is higher than the spot price). Therefore, the correct answer is that an option is at-the-money when the strike price and the spot price are the same.Rate this question:
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- 7.
The true cost of hedging transaction exposure by using forward market is
- A.
Difference between agreed rate and spot rate on the due date of contract
- B.
Difference between agreed rate and spot rate at the time of entering into contract
- C.
Forward premium / discount annualized
- D.
None of the above
Correct Answer
A. Difference between agreed rate and spot rate on the due date of contractExplanation
The correct answer is "Difference between agreed rate and spot rate on the due date of contract." This is because when a company enters into a forward contract to hedge its transaction exposure, it agrees to buy or sell a specific amount of foreign currency at a predetermined rate on a future date. The spot rate refers to the current exchange rate at the time of the due date of the contract. The difference between the agreed rate and the spot rate on the due date represents the true cost of hedging the transaction exposure using the forward market.Rate this question:
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- 8.
A firm operating in India cannot hedge its foreign currency exposure through.
- A.
Forwards
- B.
Futures
- C.
Options
- D.
None of the above
Correct Answer
B. FuturesExplanation
A firm operating in India cannot hedge its foreign currency exposure through futures because futures contracts are not available for all currencies in the Indian market. The availability of futures contracts is limited to a few major currencies such as the US dollar, euro, British pound, and Japanese yen. Therefore, if the firm's foreign currency exposure is in a currency other than those available in the futures market, it cannot use futures contracts to hedge its exposure.Rate this question:
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- 9.
Foreign currency exposures can be avoided by
- A.
Denominating the transaction in domestic currency
- B.
Entering into forward contracts
- C.
Exposure netting
- D.
Maintaining foreign currency accounts
Correct Answer
A. Denominating the transaction in domestic currencyExplanation
Denominating the transaction in domestic currency means conducting the transaction using the local currency instead of foreign currency. This helps to avoid foreign currency exposures because the transaction is not affected by fluctuations in exchange rates. By using the domestic currency, the parties involved are not exposed to the risk of currency value changes, making it a safer option.Rate this question:
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- 10.
Maintaining a foreign currency account is helpful to
- A.
Avoid exchange risk and domestic currency depreciation
- B.
Avoid exchange risk
- C.
Avoid both transaction cost and exchange risk
- D.
Avoid transaction cost
Correct Answer
C. Avoid both transaction cost and exchange riskExplanation
Maintaining a foreign currency account is helpful in avoiding both transaction costs and exchange risk. By holding funds in a foreign currency, individuals or businesses can make international transactions without incurring additional fees for currency conversion. Additionally, by keeping funds in a foreign currency, they can mitigate the risk of exchange rate fluctuations, which could potentially lead to losses if the domestic currency depreciates. Therefore, maintaining a foreign currency account allows for cost-effective and risk-averse international transactions.Rate this question:
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- 11.
Translation exposure is positive when
- A.
Exposed liabilities are lesser than exposed assets.
- B.
The exposure results in profit.
- C.
Exposed assets are lesser than exposed liabilities.
- D.
There are no liabilities
Correct Answer
A. Exposed liabilities are lesser than exposed assets.Explanation
Translation exposure refers to the risk faced by a company when its financial statements are translated from one currency to another. In this case, if exposed liabilities are lesser than exposed assets, it means that the company has more assets than liabilities in a foreign currency. This can be advantageous as it implies that the company will benefit from a favorable exchange rate when translating its financial statements, leading to a higher profit. Therefore, translation exposure is positive in this scenario.Rate this question:
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- 12.
For the purpose of translations, current rate refers to
- A.
The rate prevailing on the date of the balance sheet
- B.
The rate current at the time of transaction
- C.
The rate prevailing on the date of preparation of the balance sheet
- D.
The spot rate
Correct Answer
A. The rate prevailing on the date of the balance sheetExplanation
The correct answer is "The rate prevailing on the date of the balance sheet." This means that for the purpose of translations, the exchange rate used is the one that is in effect on the date that the balance sheet is prepared. This ensures that the financial statements accurately reflect the value of foreign currency transactions and assets at the specific point in time when the balance sheet is being finalized.Rate this question:
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- 13.
Exposed assets are those translated at
- A.
Current rate
- B.
Historical rate
- C.
Average rate
- D.
Current rate or average rate
Correct Answer
A. Current rateExplanation
Exposed assets refer to assets that are subject to foreign exchange risk. In this context, the term "translated" implies the conversion of the assets' values from one currency to another. The current rate refers to the exchange rate at the current moment, while the historical rate refers to the exchange rate at a specific point in the past. The average rate, on the other hand, is the average of exchange rates over a certain period. Therefore, the correct answer is "Current rate," as exposed assets are typically translated at the current exchange rate.Rate this question:
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- 14.
Translation loss may occur when
- A.
Exposed assets exceed exposed liabilities and foreign currency depreciates
- B.
Exposed assets exceed exposed liabilities and foreign currency appreciates
- C.
The subsidiary's balance sheet shows a loss
- D.
The foreign currency depreciates
Correct Answer
A. Exposed assets exceed exposed liabilities and foreign currency depreciatesExplanation
When exposed assets exceed exposed liabilities, it means that a company has more assets in a foreign currency than it has liabilities. If the foreign currency depreciates, the value of the assets will decrease while the liabilities remain the same. This results in a translation loss because the company will have to report a lower value for its assets when converting them back to the domestic currency.Rate this question:
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- 15.
The following method cannot be used for managing translation exposure:
- A.
Option contract
- B.
Forward contract
- C.
Leading and lagging
- D.
Exposure netting
Correct Answer
A. Option contractExplanation
Option contracts are financial derivatives that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific time period. While option contracts can be used for managing various types of financial risks, they are not typically used for managing translation exposure. Translation exposure refers to the risk of changes in the value of foreign currency-denominated assets and liabilities due to fluctuations in exchange rates. Option contracts do not directly address this type of exposure, as they are more commonly used for hedging against market risks or speculating on price movements.Rate this question:
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- 16.
Economic exposure does not deal with
- A.
Expected exchange rate changes
- B.
Changes in real exchange rates
- C.
Future cash flow of the firm
- D.
None of the above
Correct Answer
A. Expected exchange rate changesExplanation
Economic exposure refers to the risk that a firm's future cash flows may be affected by changes in exchange rates. It involves analyzing the impact of currency fluctuations on a company's international operations and assessing potential gains or losses. However, economic exposure does not specifically deal with predicting or expecting exchange rate changes. Instead, it focuses on understanding and managing the potential effects of those changes on a firm's cash flow and overall financial performance.Rate this question:
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- 17.
The __________ refers to the orderly relationship between spot and forward currency exchange rates and the rates of interest between countries.
- A.
Interest-rate parity
- B.
One-price rule
- C.
Purchasing-power parity
- D.
Exchange-power parity
Correct Answer
A. Interest-rate parityExplanation
Interest-rate parity refers to the relationship between spot and forward currency exchange rates and the rates of interest between countries. This concept suggests that the difference in interest rates between two countries should be equal to the difference in the forward exchange rates of their currencies. In other words, interest-rate parity implies that investors should not be able to make risk-free profits by borrowing in one currency, converting it into another currency, and investing it at a higher interest rate. This principle helps to ensure that exchange rates and interest rates are in equilibrium and prevents arbitrage opportunities in the foreign exchange market.Rate this question:
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- 18.
Non-resident Bank Accounts refer to
- A.
Vostro account
- B.
Nostro account
- C.
accounts opened in offshore centres
- D.
foreign bank account
Correct Answer
A. Vostro accountExplanation
Non-resident Bank Accounts, also known as vostro accounts, refer to accounts opened by a bank in a foreign country on behalf of another bank. These accounts are used to facilitate international transactions and allow the foreign bank to hold funds in the local currency. The term "vostro" means "yours" in Italian, indicating that the account is owned by the foreign bank. Therefore, this option accurately describes Non-resident Bank Accounts.Rate this question:
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- 19.
The abbreviations SDR stands for
- A.
Special Drawing Rights
- B.
Specific Drawing Rights
- C.
Special Depository Rules
- D.
Specific Depository Rules
Correct Answer
A. Special Drawing RightsExplanation
SDR stands for Special Drawing Rights. Special Drawing Rights are a type of international reserve asset created by the International Monetary Fund (IMF) to supplement member countries' official reserves. They were introduced in 1969 and are based on a basket of major international currencies, including the US dollar, euro, Chinese yuan, Japanese yen, and British pound. SDRs are used to facilitate international transactions and serve as a unit of account between member countries and the IMF. They are not a currency themselves, but rather a claim to currencies held by IMF member countries.Rate this question:
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- 20.
The value of SDR is
- A.
Based on basket of five currencies
- B.
Average of the value of US dollar and Euro
- C.
Based on value of gold
- D.
Equivalent to one US dollar
Correct Answer
A. Based on basket of five currenciesExplanation
The value of SDR (Special Drawing Rights) is based on a basket of five currencies. This means that the SDR's value is determined by the combined value of these five currencies, which are typically the US dollar, Euro, Japanese yen, British pound, and Chinese yuan. The weights assigned to each currency in the basket are periodically reviewed and adjusted to reflect changes in the global economy. This approach allows the SDR to act as a stable international reserve asset and unit of account for the International Monetary Fund (IMF) member countries.Rate this question:
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