Deck 5: International Finance: International Investment, Exchange Rates, and Financial Markets

Question 1

Which of the following is a legitimate reason for international investment?

A)Dividends from a foreign subsidiary are tax exempt in the United States.
B)Most governments do not tax foreign corporations.
C)There are possible benefits from international diversification.
D)International investments have less political risk than domestic investments.

Answer 1

There are possible benefits from international diversification.

Question 2

Theory which considers change in exchange rate with fluctuations in inflation rates is classified as

A)liquidated power parity
B)purchasing power parity
C)selling power parity
D)volatile power parity

Answer 2

purchasing power parity

Question 3

If purchasing power parity were to hold even in the short run, then:

A)real exchange rates should tend to decrease over time.
B)quoted nominal exchange rates should be stable over time.
C)real exchange rates should tend to increase over time.
D)real exchange rates should be stable over time.

Answer 3

real exchange rates should be stable over time.

Question 4

Interest Rate Parity (IRP) implies that:

A)Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
B)The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
C)The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the longterm by an equal but opposite change in the spot exchange rate
D)In the long run real interest rate between two countries will be equal

Question 5

In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of

A)domestic rates
B)forward and spot exchange rates
C)forward rate
D)spot rates

Question 6

Rule which states that similar set of goods and services produced in various countries should have equal price is classified as

A)law of similar mortgage rate
B)law of one type manufacturing
C)law of similar labor rules
D)law of one price

Question 7

Example of derivative securities includes

A)swap contract
B)option contract
C)futures contract
D)all of above

Question 8

Authority which intervenes directly or indirectly in foreign exchange markets by altering interest rates is considered as

A)central government
B)centralized stocks
C)central corporations
D)centralized instruments

Question 9

The forward market is especially well-suited to offer hedging protection against

A)translation risk exposure.
B)transactions risk exposure.
C)political risk exposure.
D)taxation.

Question 10

Suppose that the Japanese yen is selling at a forward discount in the forward-exchange market. This implies that most likely

A)this currency has low exchange-rate risk.
B)this currency is gaining strength in relation to the dollar.
C)interest rates are higher in Japan than in the United States.
D)interest rates are declining in Japan.

Question 11

Hedging is used by companies to:

A)Decrease the variability of tax paid
B)Decrease the spread between spot and forward market quotes
C)Increase the variability of expected cash flows
D)Decrease the variability of expected cash flows

Question 12

Which of the following is true of foreign exchange markets?

A)The futures market is mainly used by hedgers while the forward market is mainly used for speculating.
B)The futures market and the forward market are mainly used for hedging.
C)The futures market is mainly used by speculators while the forward market is mainly used for hedging.
D)The futures market and the forward market are mainly used for speculating.

Question 13

An arbitrageur in foreign exchange is a person who

A)earns illegal profit by manipulating foreign exchange
B)causes differences in exchange rates in different geographic markets
C)simultaneously buys large amounts of a currency in one market and sell it in another market
D)None of the above

Question 14

A floating exchange rate

A)is determined by the national governments involved
B)remains extremely stable over long periods of time
C)is determined by the actions of central banks
D)is allowed to vary according to market forces

Question 15

Investment can be defined.

A)Person's dedication to purchasing a house or flat
B)Use of capital on assets to receive returns
C)Usage of money on a production process of products and services
D)Net additions made to the nation's capital stocks

Question 16

The concept of Financial management is.

A)Profit maximization
B)All features of obtaining and using financial resources for company operations
C)Organization of funds
D)Effective Management of every company

Question 17

The finance manager is accountable for.

A)Earning capital assets of the company
B)Effective management of a fund
C)Arrangement of financial resources
D)Proper utilisation of funds

Question 18

The market value of a share is responsible for.

A)The investment market
B)The government
C)Shareholders
D)The respective companies

Question 19

The capital budget is associated with.

A)Long terms and short terms assets
B)Fixed assets
C)Long terms assets
D)Short term assets

Question 20

What does financial leverage measure?

A)No change with EBIT and EPS
B)The sensibility of EBIT with % change with respect to output
C)The sensibility of EPS with % change in the EBIT level
D)% variation in the level of production

Question 21

From the below-mentioned items which are financial assets?

A)Machines
B)Bonds
C)Stocks
D)B and C

Question 22

Trade between two countries can be useful if cost ratios of goods are:

A)Undetermined
B)Decreasing
C)Equal
D)Different

Question 23

The term Euro Currency market refers to

A)The international foreign exchange market
B)The market where the borrowing and lending of currencies take place outside the country of issue
C)The countries which have adopted Euro as their currency
D)The market in which Euro is exchanged for other currencies

Question 24

Dumping refers to:

A)Reducing tariffs
B)Sale of goods abroad at low a price, below their cost and price in home market
C)Buying goods at low prices abroad and selling at higher prices locally
D)Expensive goods selling for low prices

Question 25

International trade and domestic trade differ because of:

A)Different government policies
B)Immobility of factors
C)Trade restrictions
D)All of the above

Question 26

The margin for a currency future should be maintained with the clearing house by

A)The seller
B)The buyer
C)Either the buyer or the seller as per the agreement between them
D)Both the buyer and the seller

Question 27

The following statement with respect to currency option is wrong

A)Foreign currency- Rupee option is available in India
B)An American option can be executed on any day during its currency
C)Put option gives the buyer the right to sell the foreign currency
D)Call option will be used by exporters

Question 28

Govt. policy about exports and imports is called:

A)Commercial policy
B)Fiscal policy
C)Monetary policy
D)Finance policy

Question 29

Which of the following is international trade:

A)Trade between countries
B)Trade between regions
C)Trade between provinces
D)Both (b) and (c)

Question 30

Purchasing goods from a foreign country is called

A)Import
B)Entrepot
C)Export
D)Re-Export

Question 31

Goods imported for the purpose of export is known as

A)Home trade
B)Foreign trade
C)Entrepot
D)Trade

Question 32

Agents are appointed by?

A)Manufacturer
B)Wholesaler
C)Retailer
D)Principal

Question 33

Who among these can check the price fluctuations in the market by holding back the goods when prices fall and releasing the goods when prices rise

A)Agent
B)Mercantile agent
C)Wholesaler
D)Retailer

Question 34

These are agents whose function is to bring the buyer and the seller into contact.

A)Commission agent
B)Selling agent
C)Broker
D)Stockist

Question 35

Who among the following appoints the agent

A)Principal
B)Retailer
C)Manufacturer
D)Wholesaler

Question 36

Which among the following is not concerned with Chambers of Commerce & Industry

A)CII
B)FICCI
C)ICICI
D)ASSOCHAM

Question 37

One example of Small scale Fixed retailers among these is

A)Pedlars
B)General stores
C)Hawkers
D)Cheap Jacks

Question 38

This retail business acts as a universal supplier of a wide variety of products.

A)Multiple shop
B)Mail order Business
C)Tele-shopping
D)Departmental store

Question 39

What is the Bill receivable account?

A)Personal Account
B)Machinery Account
C)Real Account
D)Nominal Account

Question 40

A bill of exchange includes.

A)An order to pay
B)A request to pay
C)A promise to pay
D)All the above

Question 41

Which bill is drawn and accepted in the same country?

A)Trade Bill
B)Foreign Bill
C)Inland Bill
D)Accommodation Bill

Question 42

Who draws a bill of exchange?

A)Creditor
B)Debtor
C)Holder
D)None of the above

Question 43

What are the three additional days known as that a drawer gives to the drawee for payment

A)Conditional days
B)Additional days
C)Days of grace
D)Days of rebate

Question 44

When the drawee signs the bill, it is considered as

A)Accepted
B)Retired
C)Renewed
D)Endorsed

Question 45

What kind of acceptance is known as when the bill is accepted without any condition?

A)Qualified acceptance
B)Conditional acceptance
C)Blank acceptance
D)General acceptance

Question 46

When the bill is noted from the notary public, it is known as?

A)Noting
B)Discounting
C)Accepting
D)None of the above

Question 47

What is retiring a bill under rebate means?

A)Making a payment of the bill before the due date
B)Dishonoring of a bill
C)Making a payment of the bill after the due date
D)All of the above