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 8 of 9

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Q71.
When did the liberalization of the Indian Economy take place?

a.

1980

b.

1985

c.

1991

d.

1995

Discuss
Answer: (c).1991 Explanation:The liberalization of the Indian Economy took place in 1991.
Q72.
What sector in India witnessed substantial growth after the liberalization of the economy in 1991?

a.

Manufacturing sector

b.

Agricultural sector

c.

Financial sector

d.

Service sector

Discuss
Answer: (c).Financial sector Explanation:The financial sector in India witnessed substantial growth after the liberalization of the economy in 1991.
Q73.
What percentage of foreign currency loans and bonds of Indian firms is usually unhedged?

a.

30%

b.

50%

c.

65%

d.

80%

Discuss
Answer: (c).65% Explanation:As much as 65 per cent of foreign currency loans and bonds of Indian firms are unhedged.
Q74.
Why did the Reserve Bank of India (RBI) ask banks to set aside incremental provisioning and capital requirements for exposures to entities with unhedged foreign currency exposures?

a.

To encourage banks to take more risks

b.

To discourage banks from lending to entities with unhedged exposures

c.

To ensure that banks are prepared for potential losses due to exchange rate movements

d.

To increase the profitability of banks

Discuss
Answer: (c).To ensure that banks are prepared for potential losses due to exchange rate movements Explanation:The RBI asked banks to set aside incremental provisioning and capital requirements to ensure that banks are prepared for potential losses due to exchange rate movements.
Q75.
How can entities with unhedged foreign currency exposures affect the health of the banking system?

a.

By increasing the profitability of banks

b.

By reducing the capacity to service loans taken from the banking system

c.

By promoting financial stability

d.

By minimizing exchange rate risks

Discuss
Answer: (b).By reducing the capacity to service loans taken from the banking system Explanation:Entities with unhedged foreign currency exposures can affect the health of the banking system by reducing their capacity to service loans taken from the banking system.
Q76.
What is the Exchange Rate (ER)?

a.

The value of a country's currency

b.

The price of one country's currency in terms of another currency

c.

The quantity of currency in circulation

d.

The interest rate in the foreign exchange market

Discuss
Answer: (b).The price of one country's currency in terms of another currency Explanation:The Exchange Rate (ER) is the price of one country's currency in terms of another currency.
Q77.
What is the main objective of the Foreign Exchange Market (FEM)?

a.

To promote global trade

b.

To facilitate the exchange of goods and services

c.

To permit the transfer of purchasing power between currencies

d.

To regulate international financial transactions

Discuss
Answer: (c).To permit the transfer of purchasing power between currencies Explanation:The main objective of the Foreign Exchange Market (FEM) is to permit the transfer of purchasing power denominated in one currency to another and thus to trade one currency for another.
Q78.
Which of the following is NOT a type of transaction in the foreign exchange market?

a.

Spot Transactions

b.

Forward Transactions

c.

Swap Transactions

d.

Long-Term Transactions

Discuss
Answer: (d).Long-Term Transactions Explanation:Spot Transactions, Forward Transactions, and Swap Transactions are types of transactions in the foreign exchange market, but Long-Term Transactions is not.
Q79.
In a spot transaction, when is the settlement date relative to the transaction date?

a.

Same day

b.

One day later

c.

Two days later

d.

Three days later

Discuss
Answer: (c).Two days later Explanation:In a spot transaction, the settlement date is two days ahead of the transaction date, except in the case of certain currencies like the US dollar, the Canadian Dollar, or Russian Ruble, which are settled on the next working day.
Q80.
What is a characteristic of a Forward Transaction?

a.

Settlement takes place immediately

b.

The rate of exchange is fixed on the transaction date

c.

It involves the exchange of currencies for a fixed period of time

d.

The transfer of money occurs before the settlement date

Discuss
Answer: (c).It involves the exchange of currencies for a fixed period of time Explanation:In a Forward Transaction, the transaction between the parties is done at the rate of exchange fixed on the transaction date, while settlement takes place at a future date, and the transfer of money is not effected before the settlement date.
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