Question 1

Transactions in the foreign exchange market are carried out are termed as -------.&#10;A)fixed rate&#10;B)forward rate&#10;C)exchange rate&#10;D)Hedging

Accepted Answer

The term "exchange rate" refers to the rate at which one currency can be exchanged for another in the foreign exchange market.

Question 2

Demand for foreign exchange varies -------with the exchange rates.&#10;A)Direct&#10;B)Negative&#10;C)inversely&#10;D)positive

Accepted Answer

Demand for foreign exchange varies inversely with the exchange rates, meaning as exchange rates increase, demand decreases, and vice versa.

Question 3

When supply of foreign exchange is increased given the demand for foreign exchange, the rate of exchange -------.&#10;A)decrease&#10;B)increases&#10;C)Direct&#10;D)upward

Accepted Answer

When the supply of foreign exchange increases, given the demand for foreign exchange remains constant, the rate of exchange decreases. This is because there is more foreign currency available than is demanded, leading to a lower price or rate for that currency.

Question 4

When demand for foreign exchange increases, the exchange rate -------.&#10;A)increases&#10;B)inversely&#10;C)decrease&#10;D)unrelated

Accepted Answer

When demand for foreign exchange increases, it means more of the domestic currency is being exchanged for foreign currency. This increased demand for foreign currency drives up its price, leading to an increase in the exchange rate. Essentially, you need to give more of your domestic currency to get the same amount of foreign currency, reflecting an increase in the exchange rate.

Question 5

The relative version is considered to be -------to absolute version.&#10;A)superior&#10;B)Gustav Cassel&#10;C)selection of index numbers&#10;D)inferior

Accepted Answer

The relative version is often considered superior to the absolute version because it allows for comparisons between different items or periods, making it more useful for analyzing changes or differences.

Question 6

The relative version of the PPP theory is propounded by -------.&#10;A)Cassel&#10;B)Adam Smith&#10;C)J.S.Mill&#10;D)Alfred Marshall

Accepted Answer

The relative version of the Purchasing Power Parity (PPP) theory is propounded by Gustav Cassel. This version of PPP theory focuses on the changes in relative price levels between countries and their effect on exchange rates.

Question 7

According to -------theory, the exchange rate between two currencies is determined by their purchasing power.&#10;A)Purchasing Power Parity&#10;B)Balance of payment theory&#10;C)Mint parity theory&#10;D)Comparative advantage theory

Accepted Answer

Purchasing Power Parity (PPP) theory posits that the exchange rate between two currencies is determined by the relative prices of a similar basket of goods between the two countries. This means that in the long run, exchange rates should adjust to equalize the price of goods and services across different countries, reflecting their purchasing power.

Question 8

The -----------is the largest market in the world.&#10;A)foreign exchange market&#10;B)NSE&#10;C)BSE&#10;D)NASDAQ

Accepted Answer

The foreign exchange market (Forex, FX, or currency market) is the largest market in the world in terms of trading volume, surpassing the stock markets represented by options B, C, and D.

Question 9

The countries of the world are following the exchange rate system.&#10;A)fixed&#10;B)flexible&#10;C)restrictive&#10;D)strict

Accepted Answer

Most countries in the world follow a flexible exchange rate system, where the value of the currency is determined by market forces of supply and demand relative to other currencies.

Question 10

-------is a feature of the foreign exchange market which enables an investor to earn high returns.&#10;A)cost&#10;B)Leverage&#10;C)revenue&#10;D)profit

Accepted Answer

Leverage is a feature of the foreign exchange (forex) market that allows investors to control a large position with a relatively small amount of invested capital, thereby potentially earning high returns on their investment.

Question 11

&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;-------has enabled faster growth of the foreign exchange market.&#10;A)Technology&#10;B)Leverage&#10;C)Internaltrade&#10;D)exchange rate

Accepted Answer

The answer of &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;-------has enabled faster growth of the foreign...

Question 12

&#160;&#160;&#160;&#160;-------function refer to the function of converting one currency into another.&#10;A)Arbitrage&#10;B)booking&#10;C)asking&#10;D)hedging

Accepted Answer

The answer of &#160;&#160;&#160;&#160;-------function refer to the function of converting...

Question 13

-------are authorized to deal in foreign exchange transactions.&#10;A)Moneylenders&#10;B)Money launderers&#10;C)Commercial banks&#10;D)RRBs

Accepted Answer

The answer of -------are authorized to deal in foreign exchange...

Question 14

Investment in financial assets like shares or bonds abroad will ------- the demand for foreign exchange.&#10;A)inceae&#10;B)decrease&#10;C)keep constant&#10;D)fluctuate

Accepted Answer

The answer of Investment in financial assets like shares or...

Question 15

A -------country requires more foreign exchange.&#10;A)developing&#10;B)developed&#10;C)hermit nation&#10;D)restrictive

Accepted Answer

The answer of A -------country requires more foreign exchange.&#10;A)developing&#10;B)developed&#10;C)hermit nation&#10;D)restrictive...

Question 16

Services rendered by the domestic country to foreign counter parts increase the -------of foreign exchange.&#10;A)supply&#10;B)demand&#10;C)manufacture&#10;D)produce

Accepted Answer

The answer of Services rendered by the domestic country to...

Question 17

Unilateral payments received -------the supply of foreign exchange.&#10;A)increase&#10;B)decrease&#10;C)does not change&#10;D)drastically changes

Accepted Answer

The answer of Unilateral payments received -------the supply of foreign...

Question 18

-------rate variations can affect the equilibrium exchange rate.&#10;A)Birth&#10;B)death&#10;C)inflation&#10;D)production

Accepted Answer

The answer of -------rate variations can affect the equilibrium exchange...

Question 19

Interest rate differentials the exchange rate.&#10;A)affect&#10;B)tandardised&#10;C)localise&#10;D)neutralise

Accepted Answer

The answer of Interest rate differentials the exchange rate.&#10;A)affect&#10;B)tandardised&#10;C)localise&#10;D)neutralise...

Question 20

The degree of -------achieved affect the exchange rate.&#10;A)education&#10;B)health&#10;C)growth&#10;D)currency

Accepted Answer

The answer of The degree of -------achieved affect the exchange...

Question 21

The purchasing power parity theory the difference in the quality of goods.&#10;A)considers&#10;B)appreciates&#10;C)ignores&#10;D)values

Accepted Answer

The answer of The purchasing power parity theory the difference...

Question 22

The PPP theory -------capital transfers.&#10;A)considers&#10;B)appreciates&#10;C)ignores&#10;D)values

Accepted Answer

The answer of The PPP theory -------capital transfers.&#10;A)considers&#10;B)appreciates&#10;C)ignores&#10;D)values...

Question 23

The -------rate is determined by the demand for and supply of a currency.&#10;A)spot&#10;B)forward rate&#10;C)option&#10;D)futures

Accepted Answer

The answer of The -------rate is determined by the demand...

Question 24

The differencbetween bid price and ask price s the -------&#160;&#160;&#160;&#160;&#160;&#10;A)loss&#10;B)profit&#10;C)value&#10;D)difference

Accepted Answer

The answer of The differencbetween bid price and ask price...

Question 25

-------exchange rate may be either at a premium or discount or at par.&#10;A)spot&#10;B)forward&#10;C)current&#10;D)option

Accepted Answer

The answer of -------exchange rate may be either at a...

Deck 12: Understanding Foreign Exchange Market and Exchange Rate Systems: Part 1