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 6 of 9

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Q51.
Who are the indirect players in the foreign exchange market that participate through banks, brokers, or investment institutions?

a.

Commercial Banks

b.

Central Banks

c.

Retail Foreign Exchange Traders

d.

Hedge Funds

Discuss
Answer: (c).Retail Foreign Exchange Traders Explanation:Retail Foreign Exchange Traders are indirect players in the foreign exchange market who participate through banks, brokers, or investment institutions.
Q52.
What is the role of brokers in retail foreign exchange trading?

a.

Act as intermediaries for retail customers

b.

Make a two-way market for customers

c.

Charge commissions for buying and selling currencies

d.

Facilitate international payments

Discuss
Answer: (a).Act as intermediaries for retail customers Explanation:Brokers are agents of retail customers who assist in buying and selling currencies by charging some commission.
Q53.
How do primary price makers or professional dealers operate in retail foreign exchange trading?

a.

Facilitate international payments

b.

Charge commissions for buying and selling currencies

c.

Make a two-way market for customers

d.

Provide physical transaction of currencies to accounts

Discuss
Answer: (c).Make a two-way market for customers Explanation:The primary price makers or professional dealers make a two-way market for customers, quoting prices to buy and sell currencies.
Q54.
What distinguishes Non-Banking Financial Companies from brokers in the foreign exchange market?

a.

Physical transaction of currencies

b.

Market speculation

c.

Involvement in international payments

d.

Facilitation of money transfers

Discuss
Answer: (a).Physical transaction of currencies Explanation:Non-Banking Financial Companies provide physical transactions of currencies to accounts, differing from brokers who involve in transactions through market speculation.
Q55.
What services do Money Transfer Companies offer in the foreign exchange market?

a.

Speculative trading

b.

Facilitation of retail foreign exchange trading

c.

Physical transactions of currencies

d.

Transfer of money across countries at low transaction cost

Discuss
Answer: (d).Transfer of money across countries at low transaction cost Explanation:Money Transfer Companies facilitate the transfer of money from one country to another, offering services with high volume and low transaction cost.
Q56.
What is Purchasing Power Parity (PPP) and when was it popularized?

a.

It measures the purchasing capacity of one unit of currency

b.

It determines the exchange rate between currencies

c.

It calculates the ratio of price levels in two countries

d.

All of the above

Discuss
Answer: (a).It measures the purchasing capacity of one unit of currency Explanation:Purchasing Power Parity (PPP) is defined as the purchasing capacity of one unit of currency, indicating the amount of goods and services that can be purchased with one unit of currency. It was popularized by Swedish economist Gustav Cassel in the 1920s.
Q57.
What is the focus of Absolute Purchasing Power Parity?

a.

Equilibrium exchange rate

b.

Ratio of price levels in two countries

c.

Change in exchange rates over time

d.

Transportation costs in international trade

Discuss
Answer: (b).Ratio of price levels in two countries Explanation:Absolute Purchasing Power Parity focuses on the equilibrium exchange rate between the currencies of two countries, which is equal to the ratio of the price levels in the two countries.
Q58.
According to Absolute Purchasing Power Parity, how is the exchange rate (Pxy) calculated?

a.

Pxy = Px * Py

b.

Pxy = Px / Py

c.

Pxy = Px + Py

d.

Pxy = (Px + Py) / 2

Discuss
Answer: (b).Pxy = Px / Py Explanation:According to Absolute Purchasing Power Parity, the exchange rate (Pxy) is calculated as the ratio of the price levels in country x (Px) to country y (Py).
Q59.
What does Relative Purchasing Power Parity state about the relationship between exchange rates and inflation rates?

a.

They are unrelated

b.

They are inversely proportional

c.

They are directly proportional

d.

They have no impact on each other

Discuss
Answer: (c).They are directly proportional Explanation:Relative Purchasing Power Parity states that the difference in the exchange rate of the currency at home and abroad is equal to the difference in the inflation rate, which is compensated by the respective appreciation or depreciation of the exchange rate of the currency.
Q60.
What does Relative Purchasing Power Parity acknowledge about markets?

a.

Markets are perfect

b.

Markets have uniform prices

c.

Markets are imperfect

d.

Markets have no impact on exchange rates

Discuss
Answer: (c).Markets are imperfect Explanation:Relative Purchasing Power Parity acknowledges that markets are imperfect, and there are differences in transportation costs, rates of quotas and duties in different countries, implying that the price of similar or same products or services may not be the same in different markets.
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