Foreign Exchange Market and Management of Exchange Rate MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Foreign Exchange Market and Management of Exchange Rate, a fundamental topic in the field of IC 89 Management Accounting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Foreign Exchange Market and Management of Exchange Rate MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Foreign Exchange Market and Management of Exchange Rate mcq questions that explore various aspects of Foreign Exchange Market and Management of Exchange Rate problems. Each MCQ is crafted to challenge your understanding of Foreign Exchange Market and Management of Exchange Rate principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 89 Management Accounting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Foreign Exchange Market and Management of Exchange Rate MCQs are your pathway to success in mastering this essential IC 89 Management Accounting topic.

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Foreign Exchange Market and Management of Exchange Rate MCQs | Page 4 of 9

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Q31.
How is Spread% calculated in Foreign Exchange?

a.

(Bid + Offer) / Bid

b.

(Bid - Offer) / Bid

c.

(Offer - Bid) / Offer

d.

(Offer + Bi

Discuss
Answer: (b).(Bid - Offer) / Bid Explanation:Spread% is calculated as (Bid - Offer) / Bid x 100.
Q32.
What is the concept of Cross Rates in Foreign Exchange?

a.

Exchange rates involving US dollars

b.

Exchange rates involving currencies of two different countries

c.

Exchange rates involving the domestic currency of a country

d.

Exchange rates involving multiple currencies without US dollars

Discuss
Answer: (d).Exchange rates involving multiple currencies without US dollars Explanation:Cross Rates refer to exchange rates expressed by a pair of currencies where none of the currencies is the currency of the country.
Q33.
When is an exchange rate considered a Cross Rate?

a.

When it involves US dollars

b.

When it involves the domestic currency of a country

c.

When it involves currencies of two different countries

d.

When it involves multiple currencies without US dollars

Discuss
Answer: (d).When it involves multiple currencies without US dollars Explanation:An exchange rate is considered a Cross Rate when it involves multiple currencies, and none of them is the currency of the country.
Q34.
What is the purpose of Exchange Rate Forecasting for business entities?

a.

To determine historical exchange rates

b.

To make predictions for future exchange rates

c.

To analyze current exchange rates

d.

To calculate spot rates

Discuss
Answer: (b).To make predictions for future exchange rates Explanation:Exchange Rate Forecasting is essential for making predictions about future exchange rates, aiding decisions in investment, capital budgeting, financing, and trade transactions.
Q35.
Which technique of Exchange Rate Forecasting uses historical data and Time series Models?

a.

Fundamental Forecasting

b.

Technical Forecasting

c.

Market Based Forecasting

d.

Regression Forecasting

Discuss
Answer: (b).Technical Forecasting Explanation:Technical Forecasting uses historical data and Time series Models to predict future exchange rates.
Q36.
What is the basis of Fundamental Forecasting in Exchange Rate Forecasting?

a.

Historical data and Time series Models

b.

Market indicators

c.

Fundamental relationship between economic variables and exchange rates

d.

Current spot rates

Discuss
Answer: (c).Fundamental relationship between economic variables and exchange rates Explanation:Fundamental Forecasting is based on the fundamental relationship between economic variables and exchange rates.
Q37.
What are the limitations of Fundamental Forecasting?

a.

Factors are easily quantifiable

b.

Certain timing of the impact of factors is certain

c.

Forecast factors are specific to measure immediate impact

d.

Factors are not easily quantifiable

Discuss
Answer: (d).Factors are not easily quantifiable Explanation:Fundamental Forecasting has limitations like uncertain timing of the impact of factors and factors not being easily quantifiable.
Q38.
On what does Exchange Rate Determination depend?

a.

Historical data

b.

Demand and supply of a currency in the market

c.

Fundamental relationship between economic variables

d.

Market indicators

Discuss
Answer: (b).Demand and supply of a currency in the market Explanation:Exchange Rate Determination depends on the demand and supply of a particular currency in the market.
Q39.
How does the interest rate affect the exchange rate of a currency?

a.

Higher interest rate leads to currency appreciation

b.

Higher interest rate leads to currency depreciation

c.

Lower interest rate leads to currency appreciation

d.

Lower interest rate leads to currency depreciation

Discuss
Answer: (b).Higher interest rate leads to currency depreciation Explanation:When the interest rate is higher, the demand for the currency decreases, resulting in depreciation of the exchange rate.
Q40.
How does the inflation rate impact the exchange rate of a country's currency?

a.

Increase in inflation rate increases demand for currency

b.

Increase in inflation rate decreases demand for currency

c.

Decrease in inflation rate increases demand for currency

d.

Decrease in inflation rate decreases demand for currency

Discuss
Answer: (b).Increase in inflation rate decreases demand for currency Explanation:An increase in the inflation rate decreases demand for the currency in the international market.
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