Question 1

____________ means using short-term forward contracts to offset "paper" gains and losses on the long-term assets and liabilities of foreign subsidiaries.

Accepted Answer

Hedging balance-sheet exposure involves using financial instruments, like forward contracts, to protect against the effect of exchange rate fluctuations on a company's assets and liabilities denominated in foreign currencies. This strategy aims to offset the unrealized gains or losses ("paper" gains/losses) on the balance sheet items of foreign subsidiaries due to changes in exchange rates.

Question 2

Which exchange rate theory focuses on the inflation - exchange rate relationship?

Accepted Answer

Purchasing power parity (PPP) theory focuses on the relationship between inflation rates and exchange rates, suggesting that the exchange rate between two currencies should adjust to reflect changes in the countries' price levels.

Question 3

The exchange rate prevailing at a financial reporting date

Accepted Answer

The exchange rate prevailing at a financial reporting date is referred to as the Closing exchange rate. It is used to convert foreign currency transactions or financial statements to the reporting currency.

Question 4

The bank account of a non-resident of a country, where the amount of currency in the account cannot be transferred to another country is called as

Accepted Answer

A Blocked Account refers to a bank account that restricts the account holder's ability to transfer funds to another country, typically used in the context of non-residents or in situations involving international sanctions or regulatory requirements.

Question 5

Funds that cannot be remitted from the subsidiary to the parent due to host government restrictions is known as

Accepted Answer

Blocked funds are monies that are held in one country but are unable to be transferred to another country, often due to regulatory or legal restrictions imposed by the host government. This term accurately describes the scenario where a subsidiary cannot remit funds to its parent company.

Question 6

Exchange rate between currency A and currency B, given the values of currencies A and B with respect to a third currency is known as

Accepted Answer

The cross exchange rate is determined by the values of two currencies with respect to a third currency. This does not involve direct exchange between the two currencies but rather their individual values against a common third currency.

Question 7

Agreement to exchange one currency for another at a specified exchange rate and date is

Accepted Answer

A currency swap is an agreement to exchange principal and/or interest payments in one currency for principal and/or interest payments in another currency at a specified exchange rate and date.

Question 8

Long- term securities denominated in two currencies is called as

Accepted Answer

Dual-currency bonds are specifically designed to be denominated in two different currencies, providing the investor with returns in both the principal currency and the interest payments currency, which can be different.

Question 9

Foreign exchange transactions involve monetary transactions

Accepted Answer

Foreign exchange transactions involve monetary transactions between residents of two or more countries, facilitating international trade and investment.

Question 10

A foreign currency account maintained by a bank abroad is its

Accepted Answer

A nostro account is a foreign currency account that a bank holds in another country, typically in the currency of that country.

Question 11

Non-resident Bank Accounts' refer to

Accepted Answer

The answer of Non-resident Bank Accounts' refer to
...

Question 12

The number of nostro accounts that can be maintained by a bank in a particular currency is

Accepted Answer

There is no specific limit to the number of nostro accounts a bank can maintain in a particular currency. Banks may choose to have multiple nostro accounts with different banks in the same currency to facilitate their international transactions, manage risks, or for other operational reasons.

Question 13

Full fledged money changers are authorized to undertake

Accepted Answer

Full fledged money changers are authorized to deal in both the purchase and sale of foreign currency notes, coins, and travelers cheques.

Question 14

. IMF augments its resources by borrowing under

Accepted Answer

The International Monetary Fund (IMF) augments its resources through various mechanisms, including General Arrangements to Borrow (GAB), New Arrangements to Borrow (NAB), and Trust Funds. These mechanisms allow the IMF to borrow from member countries or groups of countries to increase its lending capacity.

Question 15

The value of SDR is

Accepted Answer

The value of Special Drawing Rights (SDR) is determined by a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. This method aims to reduce the reliance on any single currency and provide a more stable asset for international financial transactions.

Question 16

The term World Bank refers to

Accepted Answer

The term "World Bank" typically refers to the partnership of two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). These two entities work together to provide financial and technical assistance to developing countries.

Question 17

. IBRD lending is not available for

Accepted Answer

The International Bank for Reconstruction and Development (IBRD), part of the World Bank Group, primarily lends to middle-income and creditworthy low-income countries. It does not provide lending to multilateral agencies, which are international organizations made up of multiple countries.

Question 18

The eligibility to borrow from IDA is based on

Accepted Answer

The eligibility to borrow from the International Development Association (IDA) is based on a combination of factors including relative poverty, lack of creditworthiness to borrow on market terms, and good policy performance. This ensures that IDA resources are directed to the countries most in need and that those countries are committed to effective use of the assistance.

Question 19

Financial products of IFC does not include

Accepted Answer

The International Finance Corporation (IFC) offers a range of financial products, including loans, equity participation, and risk management products, to support private sector development in less developed countries. Therefore, all the options listed are included in IFC's financial products.

Question 20

MIGA stands for

Accepted Answer

MIGA stands for Multilateral Investment Guarantee Agency, which is an international financial institution that offers political risk insurance and credit enhancement to investors and lenders to facilitate foreign direct investment in developing countries.

Quiz 4: Foreign Exchange and International Finance