Question 1

If Quote of Bank ABC is EUR INR 68.00 /30 and Quote of Bank PQR is INR EUR 1.4550/1.4600, arbitrage opportunity will be ___________&#10;A)2828&#10;B)0&#10;C)2882&#10;D)2288

Accepted Answer

Arbitrage opportunity = (1/68.00 * 1.4600 - 1/1.4550 * 68.00) * 100000= (0.021470588 - 0.021443299) * 100000= 0.000027289 * 100000= 2.7289= 2828.9

Question 2

Effect of falling domestic exchange rate ___________&#10;A)Reduces Profitability for importers&#10;B)Increases Profitability for importers&#10;C)Exposure&#10;D)Economic

Accepted Answer

A falling domestic exchange rate makes foreign goods more expensive in terms of the domestic currency, reducing profitability for businesses that import goods to sell domestically.

Question 3

___________ refers to the size or scope of potential loss.&#10;A)Risk&#10;B)Uncertainty&#10;C)Exposure&#10;D)Tr

Accepted Answer

Risk&#10;

Question 4

____________ risk is also called as &#34;According Exposure&#34;.&#10;A)Transaction&#10;B)Economic&#10;C)Translation&#10;D)Exposure

Accepted Answer

Translation risk, also known as "Accounting Exposure," refers to the risk that a company's financial statements can be affected by exchange rate fluctuations when they have subsidiaries or operations in foreign countries. The term "Translation Exposure" specifically relates to the impact of currency exchange rate changes on the reported financial statements of a company when consolidating its global financial results.

Question 5

Internal techniques of managing forex risk includes all of the following, except _______________&#10;A)Leading and Lagging&#10;B)Matching&#10;C)Split Currency invoicing&#10;D)Forward and Future contracts

Accepted Answer

Leading and lagging, matching, and split currency invoicing are all internal techniques used by companies to manage their foreign exchange risk. Forward and future contracts, however, are external financial instruments used to hedge against forex risk. These contracts are agreements to buy or sell a currency at a future date at a predetermined price and are traded on exchanges or over-the-counter, not managed internally within the company's operations.

Question 6

When a company has receipts and payments in the same foreign currency due at the same time, it can use ___________technique of managing forex risk.&#10;A)Risk Sharing Agreement&#10;B)Lagging&#10;C)Leading&#10;D)Matching

Accepted Answer

Matching is a technique used by companies to manage foreign exchange risk by offsetting receipts and payments in the same foreign currency that are due at the same time, effectively reducing the net exposure to currency fluctuations.

Question 7

____________ is also known as secrecy jurisdiction.&#10;A)Tax haven&#10;B)Transfer Pricing&#10;C)Foreign affiliate&#10;D)Tax

Accepted Answer

Tax haven is also known as secrecy jurisdiction because it offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment, with financial secrecy being a key feature.

Question 8

A strategy used to reduce tax liabilities by pricing goods and services within a group structure in way that it does not reflect the arm's length transaction_______________.&#10;A)Thin Capitalization&#10;B)Repatriating Profits&#10;C)Transfer Pricing&#10;D)Tax haven

Accepted Answer

Transfer Pricing is the strategy used to reduce tax liabilities by setting prices for transactions within a group structure that do not necessarily reflect market prices (arm's length transaction). This can be used to shift profits to lower-tax jurisdictions.

Question 9

____________ is a Tax avoidance technique whereby multinational subsidiaries are financed primarily by debt from the parent company instead of equity capital.&#10;A)Thin Capitalization&#10;B)Repatriating Profits&#10;C)Transfer Pricing&#10;D)Tax haven

Accepted Answer

Thin Capitalization is a tax avoidance strategy used by multinational companies where they finance their subsidiaries primarily through debt rather than equity. This is done to take advantage of the tax deductibility of interest payments, thereby reducing the subsidiary's taxable income.

Deck 8: Foreign Exchange and Taxation