Question 1

____________&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;is known as Benefit/cost ratio&#10;A)profitability index&#10;B)pay back period&#10;C)npv&#10;D)irr

Accepted Answer

The profitability index, also known as the benefit/cost ratio, is a measure used in capital budgeting to evaluate the profitability of an investment. It is calculated by dividing the present value of future cash flows by the initial investment cost.

Question 2

Lower the better applies to method of Capital budgeting&#10;A)npv&#10;B)pay back period&#10;C)irr&#10;D)profitability index

Accepted Answer

The "lower the better" principle applies to the Payback Period method in capital budgeting because it indicates how quickly an investment will pay back its initial cost. The shorter the payback period, the more attractive the investment is considered to be, as it implies quicker recovery of the investment cost.

Question 3

____________&#160;&#160;&#160;&#160;&#160;&#160;is not a type of foreign exchange risk.&#10;A)transaction risk&#10;B)translation risk&#10;C)economic risk&#10;D)natural risk

Accepted Answer

Natural risk is not classified as a type of foreign exchange risk. Foreign exchange risks typically include transaction risk, translation risk, and economic risk, which are all related to the impact of currency exchange rate fluctuations on businesses and investments. Natural risk, on the other hand, refers to risks arising from natural disasters or events, which is not directly related to currency exchange rates.

Question 4

All are methods of Internally managing foreign exchange risk except, .&#10;A)exposure netting&#10;B)leading & lagging&#10;C)denomination in local currency&#10;D)forward contract

Accepted Answer

Forward contracts are external methods of managing foreign exchange risk, as they involve agreements with external parties to buy or sell currency at a future date.

Question 5

If two banks are quoting the following GBP rates: Bank A : Rs 78.9810 - 79.1110 and Bank B : Rs 79. 0110 - 79.2350. The arbitrage opportunity will be .&#10;A)100&#10;B)0&#10;C)124&#10;D)142

Accepted Answer

There is no arbitrage opportunity because the selling price of Bank A (79.1110) is not lower than the buying price of Bank B (79.0110), and the buying price of Bank A (78.9810) is not higher than the selling price of Bank B (79.2350). Arbitrage requires a price discrepancy where you can buy low from one source and sell high to another, which does not exist in this scenario.

Question 6

When a company has receipts & payments in the same foreign currency due at the same time, it can use technique of managing foreign exchange risk.&#10;A)risk sharing agreement&#10;B)leading&#10;C)lagging&#10;D)exposure netting (matching)

Accepted Answer

Exposure netting (matching) is a technique used by companies to manage foreign exchange risk by offsetting exposures in the same currency, effectively reducing the net exposure to currency fluctuations. This is done when receipts and payments are in the same foreign currency and are due at the same time, allowing the company to balance out the transactions without needing to engage in additional currency exchanges.

Question 7

An investor looking at reducing his risk is known as .&#10;A)speculator&#10;B)hedger&#10;C)arbitrageur&#10;D)trader

Accepted Answer

A hedger is someone who engages in a financial transaction to reduce or eliminate risk, often by taking an offsetting position in a related security. This is in contrast to a speculator, who takes on risk in the hope of making a profit. Arbitrageurs seek to profit from price discrepancies between markets without taking on risk, and traders can be speculators, hedgers, or arbitrageurs, depending on their strategy.

Question 8

____________&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;analyses if the benefits will justify the project cost/investment done.&#10;A)economic analysis&#10;B)technical analysis&#10;C)managerial analysis&#10;D)market analysis

Accepted Answer

Economic analysis is the process that examines the cost-effectiveness of a project, determining if the benefits outweigh the costs, thereby justifying the investment.

Question 9

Spot USD/INR is 60.5600/60.5700 and one month SWAP points are 600/700 then outright forward rate will be .&#10;A)60.6200/60.6400&#10;B)60.6400/60.62 00&#10;C)61.1600/61.2700&#10;D)61.2700/61.1600

Accepted Answer

Outright forward rate = Spot rate + (SWAP points/100) * (T/360)= 60.5600 + (600/100) * (1/360)= 60.6200

Question 10

Spot CHF/DEM rate is 0.7865/78 and one month forward points are 25-20 then what will be the one month forward CHF/DEM quote&#10;A)1.0365 - 0.9878&#10;B)0.7890 - 0.7898&#10;C)0.5365 - 0.5878&#10;D)0.7840 - 0.7858

Accepted Answer

The answer of Spot CHF/DEM rate is 0.7865/78 and one...

Question 11

National that have major economic expansion attract _____________________&#10;A)Imports&#10;B)Exports&#10;C)FDI&#10;D)Privatization

Accepted Answer

The answer of National that have major economic expansion attract...

Question 12

Systematic record of economic transaction of a country during a given period of time is _______________&#10;A)ADR&#10;B)BOP&#10;C)GDR&#10;D)IFRS

Accepted Answer

The answer of Systematic record of economic transaction of a...

Question 13

Funs based services includes all of the following except _______________&#10;A)Bill discounting&#10;B)Factoring&#10;C)Lease Financing&#10;D)M & A Services

Accepted Answer

The answer of Funs based services includes all of the...

Question 14

Current account includes all of the following except _______________&#10;A)Merchandise Balance&#10;B)Service Balance&#10;C)FDI&#10;D)Unilateral Transfers

Accepted Answer

The answer of Current account includes all of the following...

Question 15

Reserves are held in following forms, except __________________&#10;A)Foreign Currency&#10;B)Gold&#10;C)SDR&#10;D)Silver

Accepted Answer

The answer of Reserves are held in following forms, except...

Question 16

Statistical residue is a part of ____________________&#10;A)Errors and Omissions&#10;B)Current Account&#10;C)Capital Account&#10;D)Reserve Account

Accepted Answer

The answer of Statistical residue is a part of ____________________&#10;A)Errors...

Question 17

Difference between the value of merchandise exports and imports is ____________________&#10;A)BOP&#10;B)BOT&#10;C)Capital Account&#10;D)Official Reserve Account

Accepted Answer

The answer of Difference between the value of merchandise exports...

Question 18

Sale or purchase of gold in BOP is covered under _____________________&#10;A)Capital Account&#10;B)Current Account&#10;C)Official Reserve Account&#10;D)Balancing Items

Accepted Answer

The answer of Sale or purchase of gold in BOP...

Question 19

SDR is an international reserve asset created by_____________________&#10;A)IMF&#10;B)WTO&#10;C)World Bank&#10;D)IBRD

Accepted Answer

The answer of SDR is an international reserve asset created...

Question 20

FDI in Bop is covered under ________________&#10;A)Capital Account&#10;B)Current Account&#10;C)Official Reserve Account&#10;D)Balancing items

Accepted Answer

The answer of FDI in Bop is covered under ________________&#10;A)Capital...

Deck 3: Foreign Exchange Risk Management and Capital Budgeting