International Trade and Finance Practice exam

International Trade and Finance Practice exam

 

Which of the following is the primary purpose of the International Monetary Fund (IMF)?

A) To provide loans to corporations in developed countries
B) To stabilize the international monetary system by promoting exchange rate stability
C) To manage the stock exchange of foreign countries
D) To prevent international trade disputes

 

Which of the following is a key characteristic of a floating exchange rate system?

A) The government fixes the value of the currency
B) The value of the currency is determined by market forces of supply and demand
C) The central bank controls the exchange rate
D) Countries agree on a common currency

 

What is meant by ‘exchange rate risk’ in the context of international trade?

A) The risk that trade tariffs will increase
B) The risk that fluctuations in exchange rates may affect the profitability of international transactions
C) The risk of being unable to pay for goods due to financial crises
D) The risk of fraud in currency exchange

 

Which of the following methods is used to hedge against foreign exchange risk?

A) Futures contracts
B) Export subsidies
C) Import restrictions
D) Tariffs

 

What is the main function of the foreign exchange market?

A) To determine the tariffs on imports
B) To allow for the exchange of one currency for another
C) To regulate international interest rates
D) To provide loans to foreign governments

 

In the context of international trade, what does ‘political risk’ refer to?

A) Risk of changes in political leadership in a foreign country affecting the trade policies
B) Risk of an increase in political parties’ power
C) Risk of fluctuations in foreign exchange rates due to political instability
D) Risk of political parties becoming involved in foreign investments

 

Which of the following is a typical way to mitigate political risk in international business?

A) Diversifying operations across multiple countries
B) Relying solely on imports
C) Relying on one currency for all transactions
D) Ignoring international regulations

 

Which financing method is often used for international trade transactions to reduce the risk of non-payment?

A) Letter of credit
B) Trade credit
C) Invoice discounting
D) Bonds

 

In international trade, ‘incoterms’ refer to:

A) Customs tariffs for exports
B) International legal standards for contracts
C) Terms used to define the responsibilities of buyers and sellers in a transaction
D) Terms for foreign exchange transactions

 

Which of the following is NOT typically a factor in determining the exchange rate between two currencies?

A) Inflation rates
B) Political stability
C) Interest rates
D) The type of product being traded

 

The ‘spot exchange rate’ refers to the:

A) Rate at which currencies are exchanged for a delivery at a later date
B) Rate at which a currency is traded for immediate delivery
C) Average rate of currency exchange over the past year
D) Rate agreed upon for exchange in a futures contract

 

What is ‘foreign exchange exposure’?

A) The amount of foreign currency held by a country’s central bank
B) The risk of fluctuating foreign exchange rates affecting the financial outcomes of international transactions
C) The risk of trading illegal foreign currency
D) The level of exposure a government has to foreign trade policies

 

The primary objective of managing exchange exposure is to:

A) Maximize the profitability of domestic businesses
B) Minimize the impact of foreign exchange fluctuations on international business operations
C) Ensure that all international transactions are conducted in the home currency
D) Restrict foreign exchange transactions to government entities only

 

The foreign exchange market operates:

A) Only on business days during office hours
B) 24 hours a day, five days a week
C) Once a week for a few hours
D) Only during weekends

 

A country’s balance of payments records:

A) Only the export revenues of the country
B) The financial transactions between residents of the country and the rest of the world
C) The political history of a country’s trade relations
D) The amount of foreign reserves held by the central bank

 

Which of the following is a disadvantage of using a fixed exchange rate system?

A) It allows for easy adjustments in response to market forces
B) It can lead to a loss of monetary control and require large reserves to maintain the fixed rate
C) It creates instability in exchange rates
D) It allows for free-market principles to operate

 

What is the main benefit of using ‘forwards contracts’ in international finance?

A) To protect against potential currency fluctuations in future transactions
B) To immediately exchange currencies at the current rate
C) To reduce political risk in international business
D) To ensure faster payment in international trade

 

The term ‘currency swap’ refers to:

A) The exchange of currency for credit purposes
B) A financial agreement to exchange different currencies over time at agreed-upon rates
C) The act of exchanging currencies between two countries
D) The immediate settlement of currency exchange at the market rate

 

Which of the following is an example of ‘international performance evaluation’?

A) Evaluating the profitability of a foreign subsidiary
B) Assessing the value of a country’s exports
C) Evaluating the political stability of a country
D) Measuring the currency strength relative to a local economy

 

What does the term ‘capital flight’ refer to?

A) The rapid movement of capital within a country
B) The movement of capital from one country to another due to political or economic instability
C) The conversion of foreign currency into domestic currency
D) The purchase of foreign assets by domestic firms

 

Which of the following is a disadvantage of trade credit financing for international transactions?

A) It requires no collateral
B) The risk of non-payment is high
C) It provides immediate payment
D) It simplifies export financing

 

The concept of ‘arbitrage’ in international trade refers to:

A) The illegal act of inflating currency values
B) The practice of buying and selling the same asset in different markets to profit from price differences
C) The political manipulation of exchange rates
D) The export of goods at a loss to gain market share

 

The primary goal of managing political risk is to:

A) Ensure that a company can avoid foreign exchange loss
B) Protect a company’s investments from adverse political events
C) Maximize revenue from trade deals
D) Minimize customs duties

 

Which of the following would most likely lead to currency depreciation?

A) A sudden increase in domestic interest rates
B) Political instability in a country
C) A significant increase in export demand
D) The introduction of new trade agreements

 

The ‘currency crisis’ typically occurs when:

A) A country’s government introduces a fixed exchange rate
B) There is a sudden and significant devaluation of a currency due to speculative attacks
C) Trade balance improvements are sustained over time
D) A nation experiences high economic growth

 

The term ‘balance of trade’ refers to:

A) The total amount of money a country spends on imports
B) The difference between a country’s exports and imports of goods
C) The overall financial stability of a country
D) The amount of capital invested in foreign countries

 

Which of the following is the most common method of payment in international trade transactions?

A) Cash on delivery (COD)
B) Letter of credit
C) Money transfer services
D) Bank loans

 

A company can manage exchange exposure by:

A) Entering into currency hedging contracts
B) Reducing its international sales
C) Limiting its foreign suppliers
D) Repatriating profits immediately

 

What does ‘political risk insurance’ provide to international businesses?

A) Coverage against exchange rate fluctuations
B) Protection from the risk of political instability or expropriation in a foreign country
C) Insurance against natural disasters
D) Coverage against non-payment of loans

 

The concept of ‘import substitution’ refers to:

A) The practice of reducing imports by developing domestic industries to produce previously imported goods
B) The reduction of tariffs on imported goods
C) The increase of foreign investment in domestic industries
D) The establishment of new international trade agreements

 

 

What is a major benefit of using a letter of credit in international trade?

A) It guarantees that goods will be shipped
B) It ensures the buyer pays for the goods
C) It eliminates the need for export documentation
D) It protects against changes in the political environment

 

The ‘repatriation of profits’ refers to:

A) The process of reinvesting profits in foreign countries
B) The transfer of profits from a foreign subsidiary back to the parent company
C) The redistribution of profits among foreign investors
D) The conversion of profits into foreign currency

 

What is the role of the World Trade Organization (WTO) in international trade?

A) To issue international bonds
B) To resolve trade disputes and set trade rules among nations
C) To manage national currencies
D) To protect domestic industries through tariffs

 

Which of the following best describes ‘exchange rate volatility’?

A) A stable and predictable currency exchange rate
B) The fluctuation in exchange rates due to market forces or economic factors
C) The alignment of exchange rates to international standards
D) A fixed rate of exchange between two currencies

 

In a foreign exchange swap, which currencies are exchanged?

A) A foreign currency for the domestic currency and vice versa, typically for short-term purposes
B) Two different foreign currencies for the same amount of time
C) A country’s domestic currency for multiple foreign currencies
D) The same foreign currency exchanged at different rates

 

Which type of foreign exchange rate system uses government intervention to maintain the value of a currency within a certain range?

A) Fixed exchange rate
B) Floating exchange rate
C) Pegged exchange rate
D) Managed float

 

What is the primary function of ‘countertrade’ in international trade?

A) To exchange goods and services without using cash or credit
B) To settle financial obligations between governments
C) To engage in financial swaps between companies
D) To adjust exchange rates by central banks

 

Which of the following is an example of a ‘capital account’ transaction in the balance of payments?

A) Payment for imports of goods
B) Purchase of foreign stocks
C) Foreign investment in domestic bonds
D) Payment for export of services

 

The theory of ‘purchasing power parity’ (PPP) asserts that:

A) Exchange rates will equalize based on the purchasing power of a country’s currency
B) Currency value is determined solely by the central bank’s intervention
C) The global supply of money determines the value of a currency
D) Currencies will fluctuate based on economic growth alone

 

What does the term ‘currency devaluation’ mean?

A) A decrease in the official value of a currency in a fixed exchange rate system
B) An increase in the value of a currency in an open market
C) The stabilization of a currency at a specific rate
D) A shift from using foreign currencies to a domestic currency

 

The main objective of using an ‘interest rate swap’ is to:

A) Exchange cash flows based on a foreign currency rate
B) Hedge against foreign exchange risks related to interest rate movements
C) Transfer ownership of foreign assets
D) Settle international trade debts

 

Which of the following is a feature of an ‘export credit agency’?

A) It provides loans to foreign governments to promote trade
B) It offers insurance against political and commercial risks associated with exporting
C) It sets exchange rates for trade transactions
D) It manages tariffs on exported goods

 

What is a key characteristic of ‘trade protectionism’?

A) Encouraging free trade and the reduction of tariffs
B) Imposing tariffs and quotas to protect domestic industries from foreign competition
C) Allowing countries to self-regulate exchange rates
D) Eliminating all import-export regulations

 

Which of the following is a function of the International Finance Corporation (IFC)?

A) Promoting global environmental standards
B) Providing loans and investment advice to private sector businesses in developing countries
C) Regulating international trade agreements
D) Stabilizing global exchange rates

 

The ‘terms of trade’ between two countries refer to:

A) The specific currency exchange rate agreed upon in an international transaction
B) The ratio at which one country’s exports are exchanged for imports from another country
C) The level of tariffs imposed on imported goods
D) The government regulations regarding international investments

 

What is the primary goal of an ‘export subsidy’?

A) To encourage foreign investments in a domestic market
B) To provide financial assistance to foreign countries for trade agreements
C) To lower the cost of domestic exports and encourage international competitiveness
D) To raise tariffs on imported goods

 

In the context of international finance, the ‘current account’ includes transactions related to:

A) Exports, imports, income from investments, and transfers
B) Government and corporate bonds issued to foreign investors
C) The sale of domestic currency to foreign markets
D) Capital investment in foreign businesses

 

Which of the following is NOT a common method of payment in international trade?

A) Bank draft
B) Cash on delivery
C) Invoice financing
D) Debit card

 

What does ‘currency speculation’ involve?

A) The purchase of foreign currency to avoid political risks
B) The buying and selling of currencies to profit from exchange rate fluctuations
C) The establishment of fixed exchange rates between countries
D) The act of creating new foreign exchange reserves

 

In international trade, ‘bilateral trade agreements’ typically involve:

A) Agreements between two countries to increase tariffs on imports
B) Agreements between two countries to reduce trade barriers and tariffs
C) One country providing loans to another country for trade expansion
D) International treaties on foreign exchange rates

 

The ‘real exchange rate’ is calculated by:

A) Dividing the nominal exchange rate by the inflation rates of both trading countries
B) Subtracting the trade balance from the nominal exchange rate
C) Adding the country’s GDP growth rate to the nominal exchange rate
D) Adjusting the nominal exchange rate for inflation differentials between two countries

 

Which of the following factors is most likely to lead to a reduction in a country’s current account deficit?

A) Increased government spending on imports
B) Declining domestic investment in foreign assets
C) A decrease in national savings rates
D) A rise in exports and a decline in imports

 

What does the term ‘trade diversion’ refer to?

A) The movement of trade from one country to another due to changes in exchange rates
B) A shift in imports from one country to another due to the establishment of trade agreements
C) A trade imbalance caused by changes in currency values
D) A reduction in domestic trade caused by international trade restrictions

 

In terms of political risk, ‘expropriation’ refers to:

A) The loss of profits due to nationalization of assets by a foreign government
B) The risk of sudden changes in foreign trade tariffs
C) The act of creating tariffs to protect domestic companies
D) The confiscation of private property by foreign investors

 

Which of the following is an example of a ‘direct investment’ in international trade?

A) Purchasing foreign bonds
B) Investing in foreign real estate or businesses
C) Buying foreign stocks
D) Trading foreign currencies on the exchange market

 

The ‘adjustment process’ of exchange rates refers to:

A) The government setting a new exchange rate for the currency
B) The adjustment of exchange rates to stabilize an economy after trade imbalances
C) The changing of interest rates to influence exchange rates
D) The fixed exchange rate system applied by international monetary organizations

 

What is the primary function of an ‘import quota’?

A) To provide financial incentives for foreign exports
B) To restrict the quantity of goods imported to protect domestic industries
C) To set a fixed exchange rate for imports
D) To provide subsidies to domestic producers for exports

 

Which of the following best defines ‘foreign direct investment’ (FDI)?

A) The purchase of foreign government bonds
B) The acquisition of foreign currency by a domestic investor
C) Investment in tangible assets such as foreign factories or companies
D) Investment in the stock market of a foreign country

 

Which of the following is a potential disadvantage of adopting a common currency, such as the Euro?

A) Countries can no longer independently adjust interest rates to respond to economic conditions
B) Exchange rates between participating countries become more volatile
C) Countries can set independent trade tariffs
D) There is no impact on fiscal policy coordination

 

What does ‘trade liberalization’ primarily aim to achieve?

A) Increased government control over the economy
B) Higher tariffs and barriers for imports
C) Greater freedom of trade by reducing trade restrictions and tariffs
D) Stronger political control over foreign markets

 

 

What does the term ‘foreign exchange market’ refer to?

A) A marketplace where goods and services are traded internationally
B) A market where foreign governments trade currency
C) A market where foreign currencies are traded for other currencies
D) A market for the exchange of goods based on international agreements

 

The ‘balance of payments’ consists of:

A) A single transaction between countries
B) A country’s total imports and exports
C) A record of all financial transactions made between a country and the rest of the world
D) The difference between a country’s exports and imports of services

 

Which of the following best describes ‘currency speculation’?

A) The exchange of currencies for trade purposes
B) The act of buying and selling foreign currencies to profit from fluctuations in exchange rates
C) The purchase of foreign assets to hedge against domestic inflation
D) The use of government-backed bonds in the foreign exchange market

 

Which financial instrument is used to hedge against foreign exchange risk in international trade?

A) Forward contract
B) Treasury bond
C) Commercial paper
D) Corporate bond

 

In the context of international trade, what is ‘import substitution’?

A) The process of increasing imports from foreign countries to boost domestic economies
B) The policy of replacing foreign imports with domestically produced goods to reduce dependency
C) The exchange of goods between countries at discounted rates
D) The formation of alliances between importers and exporters

 

Which of the following is a potential disadvantage of a floating exchange rate system?

A) Stability in international trade
B) Increased volatility in exchange rates
C) High levels of government intervention
D) Fixed rates of conversion for currencies

 

Which of the following is most likely to affect a country’s foreign exchange rate in the short term?

A) Political stability
B) Government policies
C) Changes in interest rates
D) All of the above

 

What is the main objective of a ‘currency peg’ system?

A) To allow currencies to fluctuate freely based on market conditions
B) To fix the exchange rate of a country’s currency to another currency or a basket of currencies
C) To restrict foreign exchange transactions to prevent speculative trading
D) To ensure a steady supply of foreign currency reserves

 

Which of the following represents a trade deficit?

A) A situation where imports exceed exports
B) A situation where exports exceed imports
C) A situation where a country’s domestic production meets all its consumption needs
D) A situation where international loans exceed international investments

 

What does the term ‘trade liberalization’ typically involve?

A) Increasing tariffs on imports to protect local industries
B) Reducing trade restrictions and barriers to promote free trade
C) Imposing quotas on imported goods
D) Strengthening government control over international trade

 

Which of the following is NOT typically a component of a country’s capital account?

A) Foreign direct investment
B) Foreign portfolio investment
C) Exports of goods and services
D) International loans and borrowings

 

The ‘real exchange rate’ adjusts the nominal exchange rate for:

A) Political risks
B) Inflation differentials between two countries
C) Changes in the money supply
D) Changes in foreign direct investments

 

What is ‘political risk’ in the context of international trade?

A) Risk related to changes in the currency exchange rates
B) Risk arising from changes in a country’s government or political environment that could affect trade and investments
C) Risk from unexpected fluctuations in commodity prices
D) Risk from international trade tariffs

 

Which of the following would most likely cause a country to experience a currency depreciation?

A) A rise in domestic inflation relative to foreign inflation
B) A decrease in domestic interest rates
C) Increased demand for the country’s exports
D) Increased foreign investment in the country

 

What is a primary advantage of using an ‘export credit insurance’ policy?

A) It provides liquidity to exporters
B) It guarantees payment in the case of non-performance by the importer
C) It allows exporters to bypass tariffs
D) It offers protection against currency fluctuations

 

What is ‘central bank intervention’ in the foreign exchange market?

A) The central bank sets exchange rates for all international transactions
B) The central bank buys and sells currencies to influence the exchange rate
C) The central bank forces trade deficits to balance the currency
D) The central bank manages international tariffs and import-export regulations

 

Which of the following best defines ‘currency swap’?

A) The exchange of currencies between two countries with an agreement to reverse the transaction at a later date
B) A transaction where two currencies are traded at a fixed exchange rate for a short term
C) A loan arrangement between two countries in exchange for foreign currency
D) A permanent change in the value of a currency in relation to another currency

 

What is the primary purpose of ‘foreign direct investment’ (FDI)?

A) To promote free trade by reducing tariffs
B) To establish long-term interests in foreign markets through ownership of assets such as companies or land
C) To facilitate short-term currency speculation
D) To settle international trade deficits

 

Which of the following is an example of a trade barrier?

A) Subsidies for domestic exporters
B) A reduction in tariffs
C) Increased government spending
D) A decrease in interest rates

 

What does the term ‘dollarization’ refer to in international trade?

A) The use of the U.S. dollar as the official currency of another country
B) The process of increasing U.S. export tariffs
C) The pegging of a currency to the U.S. dollar
D) The conversion of all foreign currencies into U.S. dollars

 

What is the main disadvantage of adopting a fixed exchange rate system?

A) Exchange rates can fluctuate freely based on market demand
B) The central bank must maintain large reserves of foreign currency to stabilize the rate
C) Currency values are determined by supply and demand in the market
D) The country has to shift from a market-based economy to a command economy

 

Which of the following is most likely to lead to an increase in a country’s currency value?

A) High inflation rates relative to other countries
B) Increased foreign investment in the country
C) A decrease in the national savings rate
D) A decrease in exports

 

Which organization is responsible for overseeing international trade rules and resolving disputes between countries?

A) International Monetary Fund (IMF)
B) World Bank
C) World Trade Organization (WTO)
D) International Finance Corporation (IFC)

 

Which of the following is NOT a typical benefit of foreign exchange derivatives?

A) Hedging against currency risk
B) Speculation on exchange rate movements
C) Reducing the risk of domestic currency fluctuations
D) Reducing political risks associated with international trade

 

A ‘soft currency’ is best described as:

A) A currency that is stable and widely accepted in international trade
B) A currency that is subject to frequent depreciation and is not easily convertible
C) A currency pegged to the U.S. dollar
D) A currency backed by large reserves of gold

 

The ‘Bid-Ask Spread’ in foreign exchange markets refers to:

A) The difference between the highest and lowest exchange rates over a period of time
B) The difference between the buying and selling price of a currency
C) The rate at which central banks set official exchange rates
D) The amount of profit earned from currency speculation

 

What is the purpose of an ‘hedging strategy’ in foreign exchange?

A) To maximize profits from exchange rate fluctuations
B) To protect against the potential risks of unfavorable exchange rate movements
C) To regulate the money supply
D) To create long-term investments in foreign markets

 

What is the key feature of ‘offshore financial centers’?

A) They are countries with strict financial regulations to prevent money laundering
B) They offer lower taxes and minimal regulation for foreign investors
C) They provide higher interest rates for local investors
D) They are mainly focused on domestic economic growth

 

What does ‘currency risk’ in international trade refer to?

A) The risk that a country’s currency will appreciate against others
B) The risk of an investment losing value due to exchange rate fluctuations
C) The risk that a foreign government will nationalize assets
D) The risk of fluctuations in interest rates

 

What is the primary function of ‘capital controls’ in international finance?

A) To regulate the flow of foreign exchange and investments into and out of a country
B) To manage international trade tariffs
C) To stabilize the domestic banking sector
D) To prevent foreign competition in local markets

 

 

Which of the following is most likely to decrease the risk of political instability affecting international trade?

A) Establishing trade quotas
B) Negotiating trade agreements with multiple countries
C) Maintaining high levels of foreign debt
D) Strengthening domestic currency reserves

 

What is the main objective of ‘import/export financing’ for businesses?

A) To increase the tax rate on imports and exports
B) To provide businesses with the necessary funds to facilitate international trade
C) To reduce the impact of political risks on trade
D) To protect domestic industries from foreign competition

 

What does the term ‘repatriation of funds’ refer to?

A) The process of transferring foreign exchange reserves to the central bank
B) The return of profits or capital to a company’s home country after an international investment
C) The purchase of foreign currency to hedge against exchange rate fluctuations
D) The transfer of financial assets from one subsidiary to another

 

In terms of international performance evaluation, which of the following is a common metric for assessing a company’s foreign operations?

A) Local tax rates
B) Currency exchange fluctuations
C) Return on investment (ROI) from international markets
D) Number of trade barriers imposed by host countries

 

Which of the following describes the purpose of the International Monetary Fund (IMF)?

A) To promote long-term capital flows to emerging markets
B) To provide loans to countries facing balance of payments problems
C) To establish and regulate the rules for international trade
D) To act as a development bank for infrastructure projects

 

What does ‘exchange rate risk’ refer to in international trade?

A) The risk of changes in the price of a traded commodity
B) The risk of losses due to fluctuations in the value of currencies in the foreign exchange market
C) The risk of political instability affecting international markets
D) The risk associated with high import tariffs imposed by foreign governments

 

What is a major disadvantage of the ‘floating exchange rate’ system?

A) It can result in a constant overvaluation of a currency
B) It requires countries to hold large amounts of foreign exchange reserves
C) It can lead to increased volatility in exchange rates
D) It restricts a country’s ability to adjust interest rates

 

What is the purpose of the ‘most favored nation’ (MFN) status in international trade?

A) To grant preferential treatment to the countries with the highest trade volumes
B) To ensure that a country’s trading partners are treated equally
C) To impose tariffs on a specific country to reduce trade imbalances
D) To guarantee that a country has access to all global markets

 

What is ‘transfer pricing’ in the context of international business?

A) The process of determining how much a company should pay in taxes to foreign governments
B) The practice of setting prices for transactions between divisions or subsidiaries of a multinational company
C) The exchange rate used to convert international sales into the domestic currency
D) The cost of shipping goods internationally

 

Which of the following is a major challenge faced by businesses engaging in international trade?

A) Access to reliable global communication networks
B) Managing fluctuations in international interest rates
C) Understanding and navigating foreign legal and regulatory environments
D) Predicting commodity price movements

 

What does ‘economic exposure’ in international finance refer to?

A) The risk that a country’s economic growth will lead to a rise in inflation
B) The risk that a company’s value will be affected by unexpected changes in exchange rates
C) The risk of loss in international trade due to political decisions
D) The risk of a country experiencing economic recessions

 

What is the purpose of ‘political risk insurance’?

A) To insure foreign exchange transactions against fluctuations in currency values
B) To protect businesses against losses from government actions such as expropriation or nationalization
C) To cover transportation risks for international shipping
D) To insure against losses due to tariffs and trade barriers

 

Which of the following is a characteristic of a ‘depreciating currency’?

A) The value of the currency rises relative to others
B) The currency loses value relative to other currencies
C) The currency is fixed in value against another currency
D) The currency is freely convertible into foreign exchange

 

In the context of international trade, what does the ‘invisible trade balance’ refer to?

A) The value of goods traded between countries
B) The financial transactions that do not involve the exchange of tangible goods, such as services and royalties
C) The difference between a country’s imports and exports of tangible goods
D) The level of foreign investment in a country

 

Which of the following is an example of a ‘trade agreement’?

A) A global currency exchange agreement
B) An agreement between two countries to reduce tariffs on goods traded between them
C) A deal between a company and its investors to hedge foreign exchange risk
D) A treaty to increase the money supply in international markets

 

Which of the following best defines ‘arbitrage’ in the foreign exchange market?

A) The practice of setting an exchange rate at a fixed level
B) The buying and selling of currencies in different markets to profit from price discrepancies
C) The borrowing of funds to finance international trade
D) The use of government bonds to hedge against currency risks

 

Which of the following can cause a currency to appreciate?

A) Increased demand for the country’s exports
B) A decrease in foreign investment in the country
C) High inflation rates in the country
D) Political instability in the country

 

What is ‘hedging’ in the context of international finance?

A) The process of investing in foreign assets to diversify risk
B) The use of financial instruments to offset potential losses due to changes in exchange rates
C) The government policy of stabilizing currency values
D) The act of speculating on the future price of currencies

 

In terms of foreign trade, what is a ‘letter of credit’?

A) A document issued by a bank that guarantees payment for an international transaction
B) A contract between two companies outlining the terms of a sale
C) A government certificate granting permission to import/export goods
D) A certificate issued by an insurance company to protect against shipping losses

 

What is ‘globalization’ in the context of international trade?

A) The process of expanding domestic markets into international markets
B) The increase in international trade and the growing interconnectedness of economies worldwide
C) The establishment of regional trading blocs and reducing global competition
D) The movement of capital from developed countries to emerging markets

 

What does ‘import quota’ refer to?

A) A tax on imported goods designed to increase government revenue
B) A limit on the quantity of a particular good that can be imported into a country
C) The amount of foreign currency a country can use for international trade
D) A guarantee of payment from the importer to the exporter

 

Which of the following is a factor that can cause fluctuations in exchange rates?

A) The level of national debt
B) Domestic interest rates
C) Political stability
D) All of the above

 

What is the main benefit of using a ‘currency swap’ in international finance?

A) To avoid paying taxes on foreign income
B) To gain access to foreign capital markets
C) To manage currency exchange rate risk by swapping cash flows in different currencies
D) To reduce government control over currency movements

 

What does ‘import tariffs’ mean?

A) A fee paid by the exporter to ship goods to a foreign market
B) A tax imposed on imported goods to raise government revenue and protect domestic industries
C) A subsidy granted to foreign exporters to encourage imports
D) A fee paid to ensure goods comply with international trade regulations

 

Which of the following best describes a ‘balance of payments surplus’?

A) The value of a country’s imports exceeds its exports
B) The value of a country’s exports exceeds its imports
C) The country has a deficit in its capital account
D) The country has a higher foreign debt than its external assets

 

 

Which of the following is the primary function of the World Trade Organization (WTO)?

A) To regulate the foreign exchange markets
B) To promote free trade by regulating and facilitating international trade agreements
C) To set interest rates for international transactions
D) To provide loans to developing countries for trade-related infrastructure projects

 

What is the main goal of political risk management in international trade?

A) To reduce the impact of fluctuating currency values
B) To minimize losses resulting from unfavorable government actions
C) To increase international investment returns
D) To avoid government intervention in foreign markets

 

Which type of foreign exchange transaction is used to exchange currencies at a fixed rate for a future date?

A) Spot transaction
B) Swap transaction
C) Forward contract
D) Arbitrage transaction

 

Which of the following is an example of a trade barrier?

A) Free trade agreement
B) Import tariff
C) Currency devaluation
D) International performance evaluation

 

In international trade, what does ‘countertrade’ refer to?

A) The use of foreign currency to settle international trade debts
B) A trade agreement where goods and services are exchanged directly without using money
C) The practice of setting trade quotas
D) The provision of financial guarantees to export-import companies

 

What is the primary purpose of a currency forward contract?

A) To set a fixed exchange rate for immediate transactions
B) To hedge against future fluctuations in exchange rates
C) To lock in a future interest rate for borrowing
D) To increase the return on foreign investments

 

What is the risk of having an ‘unhedged’ exposure in international finance?

A) The risk of fixed interest rates affecting investment returns
B) The risk of unexpected fluctuations in exchange rates leading to financial loss
C) The risk of political instability affecting foreign assets
D) The risk of high inflation rates in the home country

 

How does ‘currency devaluation’ affect international trade?

A) It makes a country’s exports more expensive for foreign buyers
B) It makes a country’s imports cheaper
C) It increases the value of the domestic currency relative to others
D) It causes a country’s inflation rate to decrease

 

Which of the following is the most common type of trade financing used by exporters to guarantee payment?

A) Commercial letter of credit
B) Currency swap
C) Hedging contract
D) Government export guarantee

 

What does ‘foreign exchange intervention’ mean?

A) A country’s central bank buying or selling its own currency in the foreign exchange market to stabilize the currency value
B) The imposition of tariffs on imports
C) The agreement between nations to peg their currencies
D) The establishment of bilateral trade agreements to reduce import quotas

 

What type of exchange rate system allows a currency’s value to fluctuate based on supply and demand in the foreign exchange market?

A) Fixed exchange rate system
B) Managed float system
C) Pegged exchange rate system
D) Floating exchange rate system

 

What is the main risk associated with ‘import financing’ for businesses?

A) The risk of currency devaluation in the importing country
B) The risk of incurring high export tariffs
C) The risk of receiving payment from foreign customers
D) The risk of exchange rate fluctuations increasing the cost of goods

 

Which of the following best describes the concept of ‘absolute advantage’ in international trade?

A) A country’s ability to produce more of a good with fewer resources than another country
B) A country’s ability to produce a good at a lower opportunity cost than another country
C) A situation where countries can benefit from specializing in different goods
D) A market condition where the supply of goods exceeds demand

 

What is the purpose of the ‘Bretton Woods Agreement’?

A) To establish fixed exchange rates for global currencies
B) To create the World Bank for funding international trade
C) To introduce free trade policies worldwide
D) To set tariffs on all international trade

 

Which of the following is true regarding ‘export credit insurance’?

A) It insures against the risk of loss from political events affecting trade
B) It provides funding for export transactions
C) It guarantees repayment of loans for importers
D) It offers insurance for transportation risks

 

What is the term ‘export subsidy’ used to describe?

A) A financial incentive given to domestic firms to encourage exports
B) A tax imposed on exported goods to raise revenue
C) A limit set on the quantity of goods a country can export
D) A government loan to finance international trade transactions

 

Which of the following describes a ‘currency peg’?

A) A system where a country’s currency is tied to the value of another currency
B) A method of regulating foreign exchange through tariffs
C) A system where the government fixes interest rates for foreign investors
D) A type of trade agreement between countries

 

What does the ‘gold standard’ refer to in the context of the international monetary system?

A) A policy of fixing exchange rates to the value of gold
B) A system where all international trade must be settled using gold
C) A set of trade rules that requires gold-backed loans for developing countries
D) A method for regulating the global supply of gold

 

What does the term ‘capital flight’ mean in international finance?

A) The movement of money across borders to avoid currency devaluation
B) The process of investing foreign capital into domestic markets
C) The shift of a country’s capital assets to foreign markets
D) The increase in local investments due to favorable exchange rates

 

Which of the following is the primary challenge for companies when managing political risk in international trade?

A) Ensuring compliance with international tariffs
B) Predicting fluctuations in the foreign exchange market
C) Assessing the likelihood of expropriation or nationalization
D) Establishing banking relationships for trade financing

 

What is ‘triangular arbitrage’ in foreign exchange?

A) The use of three countries’ currencies in a single exchange transaction to exploit differences in exchange rates
B) The practice of purchasing foreign currency to hedge against inflation
C) A method of compensating exporters for exchange rate fluctuations
D) The exchange of currency through an intermediary market

 

Which of the following is an example of an ‘invisible export’?

A) Selling cars to foreign buyers
B) Providing legal or consulting services to foreign companies
C) Exporting raw materials to another country
D) Shipping agricultural products to overseas markets

 

In the context of exchange rate risk management, what does the term ‘natural hedging’ refer to?

A) Using foreign exchange contracts to secure future revenues
B) Diversifying business operations to balance currency exposure
C) Transferring financial risk to international insurers
D) Conducting transactions in the company’s home currency

 

What is the key characteristic of ‘trade liberalization’?

A) The reduction of tariffs and other trade barriers between countries
B) The implementation of higher taxes on imports to protect domestic markets
C) The promotion of exclusive trade agreements between nations
D) The strengthening of government control over foreign exchange

 

Which of the following best defines the ‘foreign exchange market’?

A) A government-run marketplace for the sale and purchase of foreign currencies
B) The international system of trade agreements that regulate global trade
C) The global network where currencies are traded and exchanged
D) A financial institution that loans capital to international businesses

 

 

Which of the following is a common method used to manage foreign exchange exposure?

A) Currency hedging
B) Nationalization
C) Trade quotas
D) Price discrimination

 

Which of the following statements about currency devaluation is true?

A) It makes a country’s exports more expensive for foreign buyers
B) It typically improves a country’s balance of payments by increasing exports
C) It decreases the demand for imported goods
D) It makes the domestic currency stronger relative to foreign currencies

 

What does the term ‘arbitrage’ refer to in the foreign exchange market?

A) The practice of borrowing money in one currency to invest in another
B) The purchase and sale of an asset in different markets to profit from price differences
C) The exchange of goods between countries without using currency
D) The act of imposing tariffs to regulate international trade

 

In the context of political risk management, which of the following is considered an “expropriation” risk?

A) The risk of a government imposing trade restrictions
B) The risk of government seizure of foreign-owned assets without compensation
C) The risk of market competition in the foreign market
D) The risk of adverse exchange rate fluctuations

 

What is the main function of an ‘export letter of credit’?

A) To protect the exporter against payment risk by guaranteeing payment from the importer’s bank
B) To secure long-term financing for the importer
C) To provide insurance against political risks during the export process
D) To act as a tax incentive for exports

 

Which of the following is a characteristic of a ‘fixed exchange rate system’?

A) The currency value fluctuates freely according to market conditions
B) The government intervenes to stabilize the currency at a set rate against another currency
C) Exchange rates are determined by market forces of supply and demand
D) The currency is pegged to the price of a commodity like gold

 

What does the term ‘currency swap’ refer to?

A) The exchange of currencies at a fixed rate for a specified period
B) The simultaneous purchase and sale of the same amount of a currency at different prices
C) A financial agreement where two parties exchange currencies for a specific time period and reverse the exchange later
D) The process of converting a foreign currency into the domestic currency without exchange rate fluctuations

 

Which of the following is a characteristic of ‘international performance evaluation’?

A) Evaluating the overall profitability of multinational companies in various markets
B) Comparing national governments’ economic policies
C) Setting exchange rate policies for cross-border transactions
D) Establishing trade tariffs for foreign imports

 

What is the primary risk involved in ‘import financing’ for companies?

A) The risk of credit loss due to non-payment from the foreign exporter
B) The risk of the importer being unable to access foreign currency
C) The risk of interest rate fluctuations in the domestic market
D) The risk of an adverse exchange rate impacting the cost of goods

 

Which of the following is considered an ‘invisible import’ in international trade?

A) Buying foreign cars
B) Paying for international services such as consulting or tourism
C) Importing raw materials
D) Exporting goods to another country

 

What is ‘quantitative easing’ in the context of foreign exchange markets?

A) A policy where central banks reduce the supply of currency in the market
B) A measure to increase the money supply in the economy by purchasing securities
C) A system to regulate trade quotas between countries
D) A method used to stabilize commodity prices in international markets

 

How does ‘interest rate parity’ affect exchange rates?

A) It prevents changes in interest rates from influencing currency exchange rates
B) It ensures that differences in interest rates between countries lead to equalized forward exchange rates
C) It allows governments to impose fixed exchange rates
D) It allows for the prediction of future exchange rate movements based on commodity prices

 

What does ‘international trade finance’ primarily involve?

A) The creation of free trade zones to facilitate international trade
B) Securing financial instruments to support the payment and settlement of cross-border transactions
C) Imposing tariffs on foreign goods to protect domestic industries
D) The purchase of equity shares in foreign companies

 

What is the primary function of the ‘IMF’ (International Monetary Fund)?

A) To provide financial assistance and advice to countries facing balance of payments problems
B) To regulate international currency markets
C) To set global interest rates for international loans
D) To facilitate the trade of goods and services between nations

 

Which of the following is a form of ‘political risk’ in international trade?

A) The risk of a sudden change in currency values
B) The risk of market competition in a foreign country
C) The risk of a government nationalizing foreign assets or imposing trade restrictions
D) The risk of fluctuating interest rates in the domestic economy

 

Which of the following is a disadvantage of a floating exchange rate system?

A) It can lead to higher levels of government intervention in currency markets
B) It causes instability in a country’s inflation and unemployment rates
C) It removes the potential for exchange rate manipulation by governments
D) It encourages countries to adopt rigid trade policies

 

What does ‘exchange rate risk’ refer to?

A) The risk of a government imposing tariffs on exports
B) The risk of fluctuating exchange rates causing financial loss in international transactions
C) The risk of illegal trade practices such as smuggling
D) The risk of political unrest affecting market conditions

 

What is the purpose of a ‘foreign exchange swap’ transaction?

A) To buy and sell a currency at the same time to exploit price differences
B) To hedge against currency risk by exchanging currencies at different dates
C) To set a fixed exchange rate for future transactions
D) To lock in interest rates for long-term loans

 

Which of the following is considered a ‘visible export’?

A) Providing legal consulting services to foreign clients
B) Shipping agricultural products to overseas markets
C) Paying for a foreign vacation
D) Importing raw materials from a foreign country

 

What is the ‘current account balance’ in the context of the balance of payments?

A) The difference between the value of exports and imports of goods and services
B) The net flow of capital in and out of a country
C) The total value of foreign reserves held by a country’s central bank
D) The value of foreign direct investment into the country

 

 

Which of the following best describes the ‘foreign exchange market’?

A) A market where goods and services are exchanged between countries
B) A marketplace for trading financial instruments in foreign countries
C) A marketplace for buying and selling currencies at agreed exchange rates
D) A platform where governments issue bonds to finance trade deficits

 

Which of the following is a major advantage of using a ‘letter of credit’ in international trade?

A) It allows for the free exchange of goods without tariffs
B) It guarantees that the seller will receive payment as long as the terms are met
C) It eliminates the risk of currency fluctuations
D) It ensures that the goods are delivered before payment is made

 

What does the ‘theory of comparative advantage’ suggest?

A) Countries should specialize in the production of goods in which they have the lowest opportunity cost
B) Trade between countries should be based on government intervention to ensure balance
C) Countries with abundant natural resources should avoid exporting them
D) The value of currencies should always remain fixed to a standard benchmark

 

What is a primary characteristic of ‘capital controls’ in international finance?

A) They regulate the amount of imports and exports in a country
B) They prevent the free flow of capital across borders by imposing restrictions
C) They guarantee a fixed exchange rate between currencies
D) They establish trade quotas to protect domestic industries

 

Which of the following is an example of ‘country risk’ in international trade?

A) Fluctuations in currency exchange rates
B) Economic downturns in other countries
C) Changes in a country’s political environment that may affect trade
D) Changes in interest rates due to global financial markets

 

How can companies use ‘currency forward contracts’ to hedge exchange rate risk?

A) By purchasing foreign currency at a future date at an agreed-upon rate
B) By borrowing foreign currency at favorable interest rates
C) By exchanging foreign currency into their home currency at the current rate
D) By investing in stocks of foreign companies to reduce exposure

 

What is the ‘Bretton Woods System’ known for in international trade and finance?

A) Establishing a system of fixed exchange rates and the creation of the IMF and World Bank
B) Promoting free trade agreements across all countries
C) Enabling the free flow of capital across borders without government interference
D) Instituting global trade tariffs to protect domestic industries

 

Which of the following is a risk associated with ‘import/export financing’ through ‘open account terms’?

A) The importer may face difficulty paying for goods before receiving them
B) The exporter might not receive payment for goods shipped until much later
C) The importer might have to pay a high interest rate on financing
D) The importer could be subject to fluctuating currency values during payment

 

In the context of international finance, what does the term ‘cross-border capital flows’ refer to?

A) The movement of physical goods between countries
B) The transfer of money between countries to finance trade and investments
C) The buying and selling of foreign currencies in the market
D) The imposition of tariffs on foreign goods

 

Which of the following is a key challenge in managing ‘political risk’ for multinational companies?

A) Predicting future economic conditions in foreign markets
B) Determining the optimal exchange rate for trade
C) Addressing potential disruptions caused by changes in the political landscape, such as government instability
D) Overcoming high tariffs on imports and exports

 

What is the role of the ‘World Trade Organization’ (WTO) in international trade?

A) To impose tariffs on non-member countries
B) To regulate exchange rates and stabilize global currency markets
C) To provide a forum for negotiating trade agreements and resolving disputes
D) To assist countries in financing trade deficits

 

What is the ‘foreign exchange risk’ for a multinational company that exports goods to a foreign country?

A) The risk that the exporter’s home country will impose tariffs on exports
B) The risk of receiving less money than expected due to fluctuations in the exchange rate
C) The risk of political instability affecting trade agreements
D) The risk that the importer will fail to pay for the goods shipped

 

Which of the following is an example of a ‘trade barrier’ in international trade?

A) A country’s decision to import goods from low-cost producers
B) The imposition of quotas or tariffs on foreign products
C) The free movement of capital across borders
D) The negotiation of currency exchange rates between countries

 

What is the purpose of an ‘export credit agency’?

A) To facilitate the financing of domestic exports and reduce payment risk for exporters
B) To provide loans for importing foreign goods
C) To monitor global trade regulations and tariffs
D) To set exchange rates for international transactions

 

What does ‘hedging’ in the context of international trade and finance refer to?

A) The practice of borrowing money from foreign banks at low interest rates
B) Taking steps to reduce the risk of unfavorable exchange rate movements or political instability
C) The setting of fixed exchange rates between two currencies
D) A method for increasing foreign direct investment in a country

 

What is ‘currency speculation’ in the foreign exchange market?

A) The purchase of currency to hedge against exchange rate fluctuations
B) The act of trading currencies with the expectation of profiting from future price changes
C) The government intervention in the currency market to stabilize exchange rates
D) The use of foreign currency to conduct international business transactions

 

How does ‘import substitution’ benefit a country’s economy?

A) By encouraging the export of high-value products to foreign markets
B) By reducing dependence on foreign goods and stimulating domestic industries
C) By increasing tariffs on imported goods to promote trade liberalization
D) By promoting investment in foreign companies operating within the country

 

What does the term ‘sovereign risk’ refer to in international trade and finance?

A) The risk of a country’s government defaulting on its debt obligations
B) The risk of unfavorable fluctuations in the exchange rate
C) The risk of high tariffs imposed by a foreign government
D) The risk of political instability affecting international trade

 

Which of the following is the most commonly used method of payment in international trade transactions?

A) Barter system
B) Open account terms
C) Letter of credit
D) Cash in advance

 

What is the purpose of ‘import quotas’?

A) To encourage foreign companies to invest in domestic markets
B) To limit the amount of goods that can be imported into a country
C) To increase the price of foreign goods for consumers
D) To guarantee a fixed exchange rate for imports

 

 

Which of the following is a key feature of the ‘fixed exchange rate system’?

A) Currencies freely fluctuate based on market forces
B) Governments maintain exchange rates within a narrow band by buying and selling currencies
C) The value of currencies is determined by political factors
D) Countries do not intervene in the currency market at all

 

What is the primary goal of the International Monetary Fund (IMF)?

A) To increase trade tariffs across member countries
B) To stabilize exchange rates and provide financial assistance to countries in need
C) To create a single global currency
D) To regulate the global stock market

 

Which of the following best describes the concept of ‘currency depreciation’?

A) The rise in value of a country’s currency relative to others
B) The fall in value of a country’s currency in the foreign exchange market
C) The action of central banks increasing the money supply
D) The appreciation of a country’s currency against one specific foreign currency

 

In the context of international trade, what does ‘export credit insurance’ protect against?

A) The risk that foreign governments will impose tariffs on exported goods
B) The risk that an importer will fail to pay for goods received
C) The risk of fluctuating exchange rates
D) The risk of international shipping delays

 

Which of the following is an example of ‘arbitrage’ in the foreign exchange market?

A) The buying and selling of currencies in different markets to exploit price discrepancies
B) The exchange of one currency for another at the official government rate
C) The purchase of bonds issued by foreign governments
D) The establishment of a fixed exchange rate between two countries

 

What is the function of the ‘World Bank’ in international finance?

A) To set tariffs on international trade
B) To offer loans and grants for long-term economic development projects in developing countries
C) To regulate the flow of capital across borders
D) To manage the global foreign exchange reserves

 

What is ‘trade liberalization’?

A) The reduction or elimination of tariffs and trade barriers between countries
B) The imposition of strict quotas on imports to protect domestic industries
C) The government’s involvement in controlling currency fluctuations
D) The stabilization of interest rates in the global financial markets

 

Which of the following describes the ‘foreign exchange risk’ for a company exporting goods to another country?

A) The risk that the cost of raw materials will increase due to tariffs
B) The risk that the currency of the country where the goods are sold will lose value against the exporter’s currency
C) The risk that political instability in the exporting country will disrupt production
D) The risk of trade deficits with the country importing the goods

 

In the context of international finance, what is a ‘currency swap’?

A) An agreement between two parties to exchange foreign currencies at a fixed rate for a specified period
B) The exchange of one currency for another at current market rates
C) A method for hedging against political risk in foreign markets
D) A practice of borrowing in a foreign currency and repaying in the same currency

 

What is a primary purpose of ‘trade blocs’ such as the European Union (EU) or the North American Free Trade Agreement (NAFTA)?

A) To allow member countries to share natural resources without financial exchange
B) To create free trade areas with reduced tariffs and other trade barriers among members
C) To centralize currency policies across all member countries
D) To create a single global currency for trade and finance

 

What is meant by ‘political risk’ in international business?

A) The risk of fluctuating exchange rates affecting profitability
B) The risk that a country’s government policies will negatively affect business operations
C) The risk of trade imbalances affecting global supply chains
D) The risk of natural disasters impacting international trade routes

 

What is the ‘current account’ in a country’s balance of payments?

A) A record of all capital inflows and outflows between countries
B) A measure of a country’s exchange rate policy and its impact on trade
C) A summary of all economic transactions involving goods, services, income, and current transfers
D) A record of foreign exchange transactions between central banks

 

Which of the following is a characteristic of a ‘floating exchange rate system’?

A) The government or central bank sets the value of the currency
B) The currency value fluctuates based on supply and demand in the open market
C) The value of a currency is pegged to another country’s currency
D) Countries do not allow currency exchange to occur at market rates

 

What is ‘political risk insurance’ in the context of international trade?

A) Insurance that covers losses from changes in interest rates
B) Insurance to protect against losses resulting from political instability, such as expropriation or war
C) Insurance against foreign exchange rate fluctuations
D) Insurance to cover risks from shipping and transportation delays

 

Which of the following is an example of a ‘non-tariff barrier’ in international trade?

A) Import quotas
B) Export taxes
C) Licensing requirements
D) Currency devaluation

 

What is the role of a ‘forward contract’ in managing exchange rate risk?

A) It allows a business to buy or sell foreign currencies at a future date for a predetermined rate
B) It guarantees that the value of the domestic currency will not change
C) It involves the immediate exchange of foreign currency at market rates
D) It allows for the cancellation of any exchange rate risk in future contracts

 

How does a ‘currency peg’ work in a fixed exchange rate system?

A) The value of the domestic currency is tied to a basket of foreign currencies or a single currency
B) The government allows the currency to fluctuate freely against other currencies
C) The domestic currency is set to an arbitrarily high value to maintain trade surpluses
D) The central bank buys and sells currencies in an open market to maintain balance

 

Which of the following is a risk management technique for multinational companies exposed to foreign exchange fluctuations?

A) Hedging through forward or futures contracts
B) Ignoring exchange rate movements and focusing solely on product quality
C) Relying exclusively on long-term borrowing in foreign markets
D) Restricting sales to domestic markets to avoid currency exposure

 

What does the term ‘trade deficit’ mean for a country’s economy?

A) The country is exporting more than it is importing
B) The country is importing more than it is exporting
C) The country has an equal balance between exports and imports
D) The country has an excess of capital inflows

 

In international trade, which of the following is a reason why a country might implement protectionist policies?

A) To reduce the costs of domestic production
B) To encourage the free flow of capital across borders
C) To protect domestic industries from foreign competition
D) To improve the global supply chain efficiency

 

 

What does the ‘spot exchange rate’ refer to?

A) The exchange rate for a currency at a future date
B) The exchange rate in effect for immediate delivery of a currency
C) The official exchange rate set by the government
D) The rate at which a currency is exchanged in offshore markets

 

Which of the following is a major advantage of hedging against foreign exchange risk?

A) It completely eliminates the risk of political instability in foreign markets
B) It ensures the company will benefit from favorable exchange rate movements
C) It stabilizes the company’s cash flows by locking in exchange rates
D) It eliminates the need for an international finance department

 

Which of the following is typically not a factor influencing exchange rates?

A) Economic growth rates in different countries
B) Interest rates offered by central banks
C) Political stability and economic performance
D) The weather conditions in the foreign exchange market

 

What is the primary function of the World Trade Organization (WTO)?

A) To facilitate the development of a global currency
B) To regulate exchange rates between member countries
C) To oversee the implementation of trade agreements and ensure trade flows smoothly
D) To provide loans to developing countries for infrastructure projects

 

What is meant by ‘currency speculation’ in international finance?

A) The process of stabilizing a currency’s value by buying and selling large amounts of it
B) The practice of predicting currency value changes and making investments based on these predictions
C) The act of pegging a currency to another country’s currency
D) The establishment of trade quotas to restrict foreign exchange movements

 

Which of the following best describes a ‘political risk assessment’ for companies involved in international trade?

A) A study of exchange rate fluctuations and their impact on profitability
B) An evaluation of the political environment in a foreign country and its potential effect on business operations
C) A report on interest rate movements in foreign markets
D) A financial report on the potential for a country’s credit default

 

What is ‘trade credit insurance’ primarily used for?

A) Protecting against potential losses from political instability
B) Insuring the risks of fluctuations in interest rates for international trade
C) Protecting exporters from the risk of non-payment by foreign buyers
D) Reducing the costs of international logistics and transportation

 

In the context of international trade financing, what is ‘letter of credit’?

A) A guarantee of payment to the seller upon the presentation of certain documents
B) A form of government-issued trade credit for exporters
C) A loan provided by an exporter to the importer to secure future payment
D) A document stating the terms and conditions for trade between countries

 

How does a ‘currency peg’ affect a country’s exchange rate policy?

A) The exchange rate is allowed to fluctuate based on market conditions
B) The currency is tied to another currency, and the exchange rate is fixed at a specific value
C) The currency becomes freely traded on the open market without government intervention
D) The currency value is adjusted based on inflation rates in the domestic market

 

What is the effect of a country’s ‘trade surplus’ on its foreign exchange market?

A) It leads to an increase in demand for foreign currency
B) It causes the domestic currency to appreciate due to increased demand
C) It results in an increase in imports and a decrease in exports
D) It leads to a depreciation of the domestic currency in international markets

 

What is the main advantage of using ‘foreign exchange futures contracts’?

A) To lock in an exchange rate for a future transaction, thereby mitigating the risk of currency fluctuations
B) To gain immediate profit from currency value changes in the market
C) To stabilize interest rates across international markets
D) To adjust domestic inflation rates by manipulating exchange rates

 

In international finance, what is a ‘bretton woods system’?

A) A system of fixed exchange rates with the U.S. dollar pegged to gold
B) A collection of trade agreements between multiple countries aimed at removing trade barriers
C) A regulatory framework for determining foreign exchange risks in multinational businesses
D) A set of global tax rules applied to all international business transactions

 

Which of the following is a reason a company would engage in ‘currency hedging’?

A) To profit from fluctuations in foreign currency values
B) To ensure that its revenues are not negatively impacted by adverse currency movements
C) To increase its exposure to foreign exchange markets
D) To maintain a fixed currency value across its international operations

 

What is meant by ‘capital flight’ in the context of international trade and finance?

A) A country’s government imposing higher tariffs on exports
B) The rapid movement of capital out of a country due to political instability or fear of economic decline
C) The repatriation of foreign investments back to the domestic market
D) The process of increasing foreign exchange reserves to stabilize the currency

 

What is the function of an ‘exchange rate regime’ in international trade?

A) It dictates the types of goods and services a country can export
B) It establishes the rules for setting and adjusting exchange rates between currencies
C) It manages the tax policies on international businesses
D) It determines the volume of international trade a country can conduct

 

In managing political risk in international business, what is the purpose of ‘expropriation insurance’?

A) To cover losses from currency fluctuations
B) To protect against the risk of a foreign government seizing or nationalizing business assets
C) To protect businesses against losses due to international trade barriers
D) To ensure that foreign trade agreements are honored by the host country

 

What is the primary goal of ‘import/export financing’?

A) To manage the interest rates on international loans
B) To provide financial support to businesses engaged in cross-border transactions
C) To create a stable exchange rate for all foreign trade
D) To regulate the price of goods in the international market

 

Which of the following is an example of a ‘soft currency’?

A) The U.S. Dollar
B) The Japanese Yen
C) The Venezuelan Bolivar
D) The Swiss Franc

 

In international finance, what does ‘capital control’ refer to?

A) A government-imposed restriction on the movement of capital in and out of a country
B) The regulation of foreign exchange market activities
C) The setting of interest rates on international loans
D) The restriction of imports to boost domestic production

 

What is the purpose of ‘performance evaluation’ in international trade?

A) To track the financial performance of businesses in foreign markets
B) To assess the risk of political instability affecting global markets
C) To evaluate the cost of tariffs on imported goods
D) To regulate the amount of capital that can be invested in foreign companies

 

 

What does the term ‘foreign exchange risk’ refer to?

A) The risk of a foreign government defaulting on its debt obligations
B) The risk that an international transaction will be affected by exchange rate fluctuations
C) The risk of a trade imbalance affecting the value of a domestic currency
D) The risk of international companies not meeting their financial goals

 

What is a key feature of a ‘floating exchange rate system’?

A) Exchange rates are fixed by the government and do not fluctuate
B) Exchange rates fluctuate based on market forces of supply and demand
C) The central bank of each country maintains an artificial value for its currency
D) Exchange rates are determined by the World Bank

 

In international trade, what is the purpose of ‘countertrade’?

A) To allow countries with trade imbalances to reduce their foreign exchange exposure
B) To facilitate trading between countries with no currency exchange agreements
C) To promote the buying and selling of goods without using cash or standard currencies
D) To enable countries to finance their exports through trade credits

 

What does the term ‘hedging’ in foreign exchange mean?

A) Making investments in currencies for profit
B) Reducing exposure to foreign currency fluctuations by using financial instruments
C) Borrowing funds in foreign currency to take advantage of lower interest rates
D) Trading in foreign exchange to maximize profit potential

 

What type of financing is typically used to finance short-term international trade transactions?

A) Trade credit
B) Foreign exchange futures contracts
C) Commercial paper
D) Syndicated loans

 

Which of the following is an example of ‘currency manipulation’ by a country?

A) Adjusting interest rates to stabilize the economy
B) Purchasing or selling large amounts of foreign currency to influence exchange rates
C) Imposing tariffs to protect domestic industries
D) Setting a fixed exchange rate system

 

What is a ‘currency swap’ in international finance?

A) A financial transaction in which two parties exchange the interest payments of a loan in different currencies
B) A contract to exchange one currency for another at a predetermined rate in the future
C) The exchange of goods and services for a fixed amount of foreign currency
D) A type of government intervention to control inflation rates

 

In international trade, what is the purpose of a ‘foreign currency option’?

A) To lock in the price of imported goods at a fixed exchange rate
B) To provide the right, but not the obligation, to exchange currencies at a predetermined rate in the future
C) To allow businesses to bypass foreign exchange markets
D) To guarantee protection against political risks in foreign markets

 

Which of the following is a key consideration for managing ‘political risk’ in international trade?

A) Fluctuations in local interest rates
B) The potential for government actions like expropriation or nationalization
C) The level of competition in the foreign market
D) The liquidity of foreign currency reserves

 

What is the main purpose of ‘trade barriers’ in international trade?

A) To protect local businesses and industries from foreign competition
B) To ensure that foreign goods are sold at higher prices
C) To increase the foreign exchange reserves of a country
D) To encourage the export of foreign goods and services

 

Which of the following best describes a ‘trade agreement’?

A) A contract between two countries that defines the rules for international currency exchange
B) A policy that allows countries to tax foreign goods to protect domestic industries
C) An agreement between two or more countries to regulate trade policies, tariffs, and other barriers
D) A legal document that facilitates financial exchanges between banks in different countries

 

What does the ‘current account’ in a country’s balance of payments track?

A) The total amount of foreign currency reserves held by the country
B) The flow of goods, services, and income between a country and the rest of the world
C) The short-term debt obligations of the government
D) The financial investments made by foreigners in the country

 

Which of the following is a primary reason for a country to engage in ‘import substitution’?

A) To stimulate domestic industries by reducing reliance on imported goods
B) To encourage greater trade relations with other countries
C) To increase the inflow of foreign capital
D) To encourage local consumers to buy foreign products

 

What does ‘foreign direct investment’ (FDI) refer to in the context of international trade?

A) The purchase of goods and services by a foreign government
B) The investment made by a company in physical assets or business operations in a foreign country
C) The sale of shares in a company to foreign investors
D) The process of trading currencies on the foreign exchange market

 

What is the ‘exchange rate risk’ associated with international trade?

A) The risk that a country’s government will devalue its currency
B) The risk of losing money due to fluctuations in currency exchange rates between two countries
C) The risk of capital flight out of a country due to political instability
D) The risk of financial default by a trading partner

 

What does the term ‘arbitrage’ in international finance refer to?

A) The process of buying and selling assets to take advantage of price discrepancies between markets
B) The risk management strategy used to hedge against currency fluctuations
C) The technique used to set fixed exchange rates between two currencies
D) The government policy to control foreign currency movements

 

Which of the following is a characteristic of a ‘fixed exchange rate’ system?

A) The exchange rate is determined by market forces of supply and demand
B) The currency’s value is pegged to another currency or a basket of currencies
C) Exchange rates fluctuate freely based on economic indicators
D) The central bank allows the currency to fluctuate within a defined band

 

What is ‘import financing’ used for in international trade?

A) To finance the purchase of goods from foreign suppliers
B) To hedge against the risk of exchange rate fluctuations
C) To cover the costs of international shipping and logistics
D) To provide loans to foreign businesses for investment purposes

 

In the context of international trade, what is the primary risk associated with ‘political instability’?

A) Fluctuations in local stock markets
B) Disruptions to the normal flow of international trade
C) A decline in interest rates across global markets
D) A shortage of qualified labor in the local economy

 

What does ‘performance evaluation’ in international trade and finance focus on?

A) Assessing the efficiency of government policies in managing foreign trade
B) Analyzing the profitability and success of international business operations
C) Measuring the level of imports and exports in a country’s economy
D) Reviewing the national budget and foreign aid allocations

 

 

What is the primary function of the ‘International Monetary Fund’ (IMF)?

A) To regulate foreign exchange markets globally
B) To provide short-term loans to countries facing balance of payments problems
C) To ensure compliance with global environmental trade policies
D) To facilitate trade agreements between countries

 

What does the ‘forward exchange rate’ refer to in foreign exchange markets?

A) The price of a currency in the spot market
B) The price of a currency agreed upon today for a transaction that will occur in the future
C) The historical average exchange rate over a period of time
D) The rate at which currencies are exchanged based on demand and supply in the market

 

What is the primary advantage of ‘using hedging strategies’ in foreign exchange risk management?

A) To guarantee profits from currency speculation
B) To eliminate all risks associated with international transactions
C) To reduce the potential financial impact of unfavorable currency fluctuations
D) To increase exposure to foreign markets and exchange rate movements

 

What is the key risk associated with ‘political risk insurance’ in international trade?

A) Risk of currency fluctuations impacting trade agreements
B) Risk of political instability, expropriation, or nationalization affecting foreign investments
C) Risk of financial default by foreign companies
D) Risk of delayed shipment of goods

 

What is the ‘discount rate’ in international finance?

A) The rate at which foreign banks lend to each other in the interbank market
B) The interest rate applied to the sale of goods in international markets
C) The rate at which a central bank lends to commercial banks
D) The rate at which future foreign exchange transactions are settled

 

What is the primary reason for a country to adopt a ‘floating exchange rate system’?

A) To maintain a constant value for the currency
B) To allow exchange rates to adjust based on economic fundamentals
C) To control inflation through fixed currency values
D) To limit the amount of international trade with foreign partners

 

Which of the following is an example of ‘trade credit’ in international finance?

A) A bank loan provided to a business for import-export financing
B) A promise to pay a foreign supplier at a later date for goods received
C) A letter of credit issued by a bank to secure a trade transaction
D) A government subsidy to promote exports

 

What does the ‘bank guarantee’ serve as in international trade?

A) A contract between buyers and sellers to exchange currencies
B) A promise by a bank to cover a buyer’s debt in case of default
C) A loan given to a foreign business for expansion
D) A tax exemption for imports of specific goods

 

In international trade, what is the purpose of a ‘letter of credit’?

A) To guarantee that a buyer’s creditworthiness is acceptable
B) To secure a payment to a seller for goods or services provided under specific terms
C) To provide financing to a buyer for the purchase of international goods
D) To provide insurance for goods in transit

 

What is the main role of the ‘World Trade Organization’ (WTO)?

A) To regulate the global foreign exchange market
B) To resolve disputes between governments and promote global trade liberalization
C) To set international interest rates for trade loans
D) To manage the global supply of currency reserves

 

Which of the following is an example of a ‘barter’ trade in international markets?

A) A business sells its goods to a foreign company in exchange for a promissory note
B) Two countries agree to exchange goods or services directly, without involving money
C) A company purchases foreign goods with a letter of credit
D) A country purchases goods and services through foreign loans

 

What does ‘capital mobility’ refer to in the context of international finance?

A) The ease with which capital can move freely across national borders
B) The speed at which foreign governments can adjust interest rates
C) The fluctuation of exchange rates in response to economic conditions
D) The restriction of foreign investments to protect local industries

 

In the context of foreign exchange, what is the ‘spot rate’?

A) The exchange rate agreed today for a currency transaction that will take place at a future date
B) The exchange rate for an immediate foreign exchange transaction
C) The rate at which currency is traded in the forward market
D) The average exchange rate over a certain period

 

What is ‘currency speculation’ in international finance?

A) The act of exchanging currencies with the goal of making a profit from price fluctuations
B) The process of hedging against potential losses in foreign currency investments
C) The trading of stocks in foreign markets to minimize exchange rate risk
D) The use of future contracts to stabilize currency prices

 

What does ‘import/export financing’ generally involve?

A) Investing in foreign securities to generate income
B) Obtaining funding to support cross-border transactions such as purchasing and selling goods
C) Securing loans to facilitate currency swaps between countries
D) Ensuring compliance with trade tariffs and taxes

 

What is the impact of ‘currency depreciation’ on international trade?

A) It makes imports more expensive and exports cheaper for foreign buyers
B) It makes exports more expensive and imports cheaper for foreign buyers
C) It has no impact on international trade prices
D) It causes the balance of payments to stabilize

 

Which of the following is the primary purpose of ‘trade credits’?

A) To facilitate cross-border payments
B) To finance a portion of the cost of international transactions
C) To regulate the flow of foreign currency between countries
D) To manage interest rates on foreign loans

 

How does a ‘devaluation’ of a currency affect international trade?

A) It reduces the competitiveness of a country’s exports
B) It makes a country’s exports cheaper and imports more expensive
C) It increases the trade deficit by encouraging more imports
D) It strengthens the national currency’s position in global markets

 

What is the ‘real exchange rate’?

A) The rate at which one currency can be exchanged for another in the spot market
B) The nominal exchange rate adjusted for inflation between two countries
C) The rate at which foreign bonds can be traded for domestic currency
D) The rate at which a foreign government can convert its reserves into domestic currency

 

What is ‘international risk diversification’ used for in global finance?

A) To invest in multiple foreign markets to reduce exposure to economic fluctuations in any single market
B) To ensure that trade agreements are equally beneficial to all parties involved
C) To create a buffer against political risk in high-risk regions
D) To align investment strategies with foreign government policies

 

 

What is a key feature of a ‘fixed exchange rate system’?

A) Exchange rates fluctuate based on market supply and demand
B) The government sets the exchange rate at a specific level, maintaining it over time
C) Exchange rates are determined by international commodity prices
D) Foreign exchange transactions are prohibited

 

How does ‘currency risk’ affect international businesses?

A) It refers to the risk that a company’s foreign revenues will be less valuable due to exchange rate fluctuations
B) It refers to the risk of overvalued currency affecting domestic inflation
C) It refers to the risk that currency will not be available in foreign markets
D) It is irrelevant for businesses that do not engage in international trade

 

What does ‘multinational corporation’ (MNC) exposure to exchange rate fluctuations primarily depend on?

A) The currency’s current exchange rate
B) The MNC’s global financial strategy, production, and markets
C) The domestic interest rates of the MNC’s home country
D) The political stability of the MNC’s home country

 

In ‘political risk management’, which of the following strategies involves assessing the stability of a country’s government before investing?

A) Currency hedging
B) Political risk analysis
C) Asset management
D) Market timing

 

What is the ‘purchasing power parity’ (PPP) theory in international finance?

A) It suggests that exchange rates should adjust so that identical goods cost the same across different countries
B) It advocates for fixed exchange rates to stabilize international trade
C) It states that currency exchange rates are determined by the amount of gold a country holds
D) It links trade deficits with changes in foreign exchange reserves

 

What is a ‘currency swap’?

A) A contract where two parties exchange currencies and agree to reverse the exchange at a later date
B) A foreign exchange transaction that takes place in the spot market
C) A hedging strategy used to protect against rising interest rates
D) A bond issuance in a foreign country

 

What is the primary benefit of ‘export credit insurance’ for businesses engaged in international trade?

A) It protects against the risk of non-payment by foreign buyers
B) It guarantees higher profit margins on international sales
C) It protects against fluctuating currency values in foreign transactions
D) It facilitates the processing of international customs duties

 

In managing exchange exposure, what is ‘transaction exposure’?

A) The risk of currency fluctuations affecting the value of future cash flows from international transactions
B) The risk of changing exchange rates impacting the global political climate
C) The risk that a country’s central bank will alter the exchange rate system
D) The risk of losing access to international markets

 

Which of the following is an example of a ‘currency option’ in international trade?

A) A contract that allows but does not obligate the purchase of a specific amount of foreign currency at a predetermined price
B) A loan agreement in foreign currency
C) A promise to pay foreign currency in the future at an agreed exchange rate
D) A bond issued by a foreign government

 

Which of the following is an advantage of a ‘floating exchange rate system’ over a ‘fixed exchange rate system’?

A) It allows automatic adjustment to economic conditions such as inflation or trade imbalances
B) It provides more stability in exchange rates
C) It prevents currency depreciation
D) It eliminates the need for foreign exchange reserves

 

What is the purpose of ‘import financing’ in international trade?

A) To raise capital to invest in foreign markets
B) To secure payment for imported goods and services from foreign suppliers
C) To manage foreign exchange rate risks in the domestic market
D) To enable foreign governments to lend money to domestic businesses

 

What is ‘cross-border trade financing’?

A) The financing of trade that involves the exchange of goods or services between countries
B) The act of issuing bonds to finance international transactions
C) The process of settling disputes between foreign traders
D) The investment in foreign companies to expand domestic trade

 

In the context of ‘trade finance’, what is the role of a ‘letter of credit’?

A) To protect both the buyer and seller by ensuring payment will be made when specified conditions are met
B) To offer a foreign exchange loan to the buyer of international goods
C) To insure the goods being traded across borders
D) To convert currencies at a fixed exchange rate

 

What does ‘exchange rate risk’ primarily involve?

A) The risk of financial loss due to changes in the value of foreign currencies
B) The risk of default by international clients
C) The risk of political changes affecting trade agreements
D) The risk of illegal currency trading practices

 

In international trade, what does the term ‘trade deficit’ mean?

A) A situation where a country’s imports exceed its exports
B) A situation where a country exports more than it imports
C) A condition where a country’s currency is undervalued
D) The amount of foreign investment in a country’s economy

 

How does ‘foreign direct investment’ (FDI) affect exchange rates in the host country?

A) FDI usually leads to an appreciation of the host country’s currency due to increased demand for its currency
B) FDI does not affect exchange rates as it only influences local business operations
C) FDI decreases the value of the host country’s currency by increasing its debt
D) FDI leads to depreciation in the host country’s currency as foreign investments are withdrawn

 

What is the purpose of ‘foreign exchange reserves’ for a country?

A) To manage the country’s debt obligations
B) To ensure the stability of the currency and facilitate international trade and payments
C) To limit international investments by foreign companies
D) To provide loans to foreign governments

 

What does ‘trade liberalization’ mean in the context of international trade?

A) The removal or reduction of restrictions or barriers on the free exchange of goods and services between countries
B) The process of controlling the flow of goods across borders
C) The establishment of tariffs to protect domestic industries
D) The imposition of financial restrictions on imports to protect a country’s currency

 

Which of the following best defines ‘global supply chain management’?

A) The process of managing the flow of goods, services, and information across international borders to reduce costs
B) The regulation of tariffs and taxes on imported goods
C) The process of determining the interest rates for international loans
D) The management of a company’s domestic product production

 

How do ‘interest rate differentials’ impact exchange rates?

A) Countries with higher interest rates tend to attract more foreign capital, leading to an appreciation of their currency
B) Higher interest rates decrease the value of a country’s currency
C) Interest rate differentials have no impact on exchange rates
D) Lower interest rates lead to the depreciation of a country’s currency by increasing its trade deficit

 

 

What is the main purpose of the ‘International Monetary Fund’ (IMF)?

A) To provide loans to countries facing balance of payments problems
B) To regulate international trade agreements
C) To issue global currency for international transactions
D) To monitor and set global interest rates

 

What is ‘currency devaluation’?

A) The deliberate reduction in the value of a country’s currency relative to others
B) The increase in the purchasing power of a currency
C) The stabilization of exchange rates through government intervention
D) The fixing of an exchange rate at a high level

 

Which of the following is a feature of ‘managed floating exchange rates’?

A) The exchange rate is determined purely by market forces with no government intervention
B) The government intervenes occasionally to stabilize or direct the value of its currency
C) Exchange rates are fixed permanently against another currency
D) Only central banks have the ability to set exchange rates

 

In political risk management, which of the following is a common approach to mitigate risks in foreign investments?

A) Diversifying investments across various countries and industries
B) Relying solely on the economic strength of the home country
C) Restricting trade to countries with favorable exchange rates
D) Investing in gold and precious metals to avoid currency exposure

 

What is a ‘countertrade’ in international business?

A) The process of exchanging goods or services without using money
B) The financing of imports through loans from the government
C) A method of currency exchange using foreign bank reserves
D) The process of trading currencies between two countries at fixed exchange rates

 

What does ‘hedging’ mean in international finance?

A) The act of reducing exposure to fluctuations in currency or commodity prices
B) The process of increasing a company’s debt to finance foreign operations
C) The practice of increasing the value of foreign investments to maximize returns
D) The act of diversifying financial risks by entering multiple markets simultaneously

 

What is a key feature of the ‘foreign exchange market’ (Forex)?

A) It is a market where countries can borrow capital from international lenders
B) It facilitates the buying and selling of currencies for international transactions
C) It is a centralized market where only governments exchange currencies
D) It sets interest rates for foreign trade loans

 

Which of the following is a tool used by countries to manage ‘currency risk’ in international trade?

A) Hedging through financial instruments such as forwards, options, and swaps
B) Increasing tariffs on imported goods
C) Establishing trade quotas for imported goods
D) Limiting foreign direct investment (FDI)

 

In the context of international finance, what is a ‘forward exchange contract’?

A) A financial agreement to buy or sell a currency at a predetermined rate on a specified future date
B) A short-term loan agreement to finance cross-border operations
C) A legal agreement between governments regarding foreign trade policies
D) A contract that allows a company to trade its products in foreign markets

 

What is the primary function of an ‘exchange rate’ in international trade?

A) To determine the cost of one currency relative to another, affecting trade and investment flows
B) To regulate the flow of goods and services across borders
C) To assess a country’s balance of payments
D) To control the interest rates of foreign loans

 

How does ‘political risk’ impact international investments?

A) Political changes or instability can affect the profitability or viability of foreign operations
B) Political risk is irrelevant in global finance as markets are self-regulating
C) Political risk mainly concerns currency depreciation and exchange rate volatility
D) Political risk typically results in higher interest rates for international loans

 

What is ‘trade financing’?

A) The provision of loans or credit facilities to businesses engaged in international trade
B) The process of monitoring global trade policies and their impacts
C) The analysis of exchange rate movements to determine the best time to trade
D) The practice of negotiating international tariffs and taxes

 

Which of the following best describes a ‘bill of lading’ in international trade?

A) A legal document that serves as proof of ownership of goods being transported
B) A type of currency exchange instrument used in trade transactions
C) A document used to secure payment for imported goods
D) A letter from a bank confirming the importer’s ability to pay for the goods

 

What is ‘import substitution’ in the context of international trade?

A) A strategy where a country develops its own industries to replace imported goods
B) A method of exchanging goods without using foreign currency
C) A policy where countries impose heavy tariffs on imports to protect domestic industries
D) A trade agreement that reduces tariffs between participating countries

 

In international finance, what is a ‘capital flight’?

A) The large-scale movement of financial assets or investments out of a country due to economic or political instability
B) The process of increasing foreign direct investment in a country’s economy
C) A method for protecting domestic currency against external fluctuations
D) A type of loan given by international banks to developing countries

 

What is ‘import financing’ in international trade?

A) Financial products that allow importers to pay for goods before receiving them
B) Loans provided by foreign governments to support the import of goods
C) The financing of domestic exports to foreign markets
D) The process of raising capital to build international trade infrastructures

 

What is ‘balance of payments’?

A) A record of all financial transactions between a country and the rest of the world
B) A statement that shows the profits of international businesses
C) A report of the total exports and imports of a country
D) The process of settling international trade invoices

 

How does ‘exchange rate volatility’ impact businesses involved in international trade?

A) It can affect the cost of imported and exported goods, leading to uncertainty in pricing and profitability
B) It has no impact as businesses rely on long-term contracts that are fixed in value
C) It leads to guaranteed profit for exporters and higher losses for importers
D) It eliminates the need for currency hedging or risk management strategies

 

What does the term ‘repatriation of profits’ mean in international business?

A) The process of bringing foreign earnings back to the home country in the form of currency or reinvestment
B) The process of exchanging local currency for foreign currency to facilitate international trade
C) The payment of foreign taxes on profits earned in international markets
D) The return of capital or foreign investments back to the home country

 

What is the ‘theory of comparative advantage’ in international trade?

A) It suggests that countries should specialize in producing goods they can produce most efficiently compared to other countries
B) It proposes that countries should focus on producing all goods domestically to reduce reliance on imports
C) It advocates for fixed exchange rates to promote international trade
D) It supports the use of trade barriers to protect domestic industries

 

 

What is the main objective of the ‘World Trade Organization’ (WTO)?

A) To regulate the international banking system
B) To provide loans to developing countries for infrastructure projects
C) To promote free trade by regulating and facilitating international trade agreements
D) To ensure countries adopt the same tax systems

 

What is ‘currency speculation’?

A) The practice of buying and selling currencies to profit from changes in their value
B) The act of a country fixing its currency value to another currency
C) The process of investing in international bonds to receive interest payments
D) The practice of using futures contracts to hedge against currency risk

 

In terms of political risk, which of the following is considered ‘expropriation’?

A) The government’s confiscation of a foreign-owned asset without compensation
B) The temporary loss of a company’s assets due to civil unrest
C) A country’s policy of offering tax incentives to attract foreign investment
D) The imposition of tariffs and trade barriers on imported goods

 

What is the ‘current account’ in a country’s balance of payments?

A) A record of a country’s transactions involving goods, services, income, and current transfers
B) The total value of foreign investments in the country
C) A record of the country’s monetary policy and interest rates
D) The value of the country’s trade surplus or deficit in services alone

 

What is ‘import duty’?

A) A tax imposed by a government on goods imported into a country
B) A tax on the profits of companies that export goods abroad
C) A fee paid to customs brokers for processing imports
D) A subsidy granted to domestic companies that import raw materials

 

What is ‘risk management’ in the context of international trade?

A) The process of identifying, assessing, and mitigating risks that may affect the success of cross-border transactions
B) The process of setting trade tariffs and regulating import/export quotas
C) The procedure for ensuring a consistent trade balance across countries
D) The process of guaranteeing fixed exchange rates between countries

 

Which of the following is a characteristic of the ‘floating exchange rate system’?

A) The exchange rate is set by a country’s central bank and does not change
B) The exchange rate fluctuates based on supply and demand in the foreign exchange market
C) The government strictly controls the value of the currency by buying and selling reserves
D) The exchange rate is pegged to the value of gold

 

What is a ‘letter of credit’ in international trade?

A) A document from a bank that guarantees payment to an exporter if specific terms are met
B) A financial instrument used to pay for services rendered by foreign contractors
C) A contract between two governments to facilitate the free trade of goods
D) A financial report showing the profitability of a foreign trade venture

 

What is ‘economic exposure’ in international finance?

A) The potential for a company to face financial losses due to fluctuations in exchange rates
B) The risk of a country’s trade deficit affecting its economic stability
C) The impact of inflation on the domestic currency’s purchasing power
D) The loss of assets due to political instability or expropriation

 

Which of the following is a characteristic of the ‘Bretton Woods System’?

A) It established a system of fixed exchange rates tied to the U.S. dollar, which was convertible to gold
B) It abolished the use of gold and silver for monetary transactions worldwide
C) It allowed each country to set its own currency value without international cooperation
D) It was based on the free floating of all world currencies

 

What is ‘trade diversion’ in the context of regional trade agreements?

A) A shift in trade from a more efficient producer to a less efficient one due to preferential treatment in a trade agreement
B) A strategy used by multinational companies to reduce the cost of production in foreign markets
C) The reduction of tariffs among countries within a regional trade area
D) The elimination of all trade barriers within an economic zone

 

In the context of managing exchange exposure, which strategy involves a company entering into a contract to buy or sell a currency at a specified future date and rate?

A) Hedging with a forward contract
B) Diversification of currency holdings
C) Speculation with options contracts
D) Currency swap agreement

 

What is the ‘political risk’ related to in international trade?

A) The risk that a country’s government actions, such as changes in laws or policies, can affect the business environment
B) The risk of changes in interest rates and inflation impacting business operations
C) The risk of exchange rate volatility affecting profits from international transactions
D) The risk of natural disasters affecting the supply chain and shipping schedules

 

What does the term ‘capital account’ refer to in a country’s balance of payments?

A) A record of capital transfers and transactions in financial assets such as direct investment and loans
B) The value of exports and imports in the trade of goods and services
C) The current market value of a country’s bonds and securities
D) The total value of a country’s stock market transactions in a given period

 

In terms of international trade, what does ‘trade liberalization’ mean?

A) The process of reducing or eliminating barriers to trade, such as tariffs and quotas
B) The process of creating trade barriers to protect domestic industries
C) The action of nationalizing foreign-owned assets to increase government control
D) The practice of stabilizing exchange rates across all nations

 

How does ‘currency risk’ affect international companies?

A) Currency fluctuations can affect the value of revenue and costs in foreign markets
B) Currency fluctuations have no impact on the financial performance of international businesses
C) Currency risk is mainly associated with domestic transactions, not international trade
D) Currency risk only affects companies that deal in commodities and raw materials

 

What is the purpose of an ‘international monetary system’?

A) To provide a framework for exchanging and regulating world currencies
B) To set trade tariffs for all international transactions
C) To regulate and standardize the interest rates across countries
D) To guarantee stable inflation rates globally

 

What is ‘foreign direct investment’ (FDI)?

A) Investment made by a company or individual in assets or business operations located in another country
B) Investments in foreign stocks and bonds to generate capital returns
C) The process of obtaining loans from international financial institutions for development projects
D) The purchase of goods and services from foreign countries

 

What is ‘currency risk hedging’?

A) The strategy of using financial instruments such as options or futures to protect against adverse currency movements
B) The practice of investing in multiple currencies to reduce overall risk
C) The act of converting profits from foreign markets into domestic currency immediately to avoid losses
D) The process of diversifying assets across different countries and industries to minimize exposure

 

What is ‘trade liberalization’ in the context of free trade agreements?

A) The reduction of barriers such as tariffs, quotas, and subsidies to allow for smoother international trade
B) The elimination of all national laws that regulate international business activities
C) The imposition of high tariffs and trade restrictions to protect domestic industries
D) The provision of subsidies to businesses that participate in international trade

 

 

What is ‘import substitution’?

A) A trade strategy where a country aims to reduce dependency on foreign goods by encouraging domestic production
B) A method for calculating the cost of imported goods into a country
C) A type of international trade agreement that eliminates tariffs
D) A financial tool used to hedge against the risk of importing goods

 

Which of the following is an example of a ‘countertrade’ agreement?

A) A deal in which goods are exchanged for other goods or services, rather than cash
B) A transaction where payment is made in foreign currency
C) A direct investment in a foreign country’s infrastructure
D) A trade agreement where tariffs are reduced but quotas are maintained

 

What is ‘export credit insurance’?

A) A type of insurance that protects exporters against non-payment by foreign buyers
B) A government program that guarantees loans to businesses involved in exporting
C) A form of tax relief for businesses involved in international trade
D) A financial product that helps importers to secure loans

 

Which of the following is a characteristic of ‘currency swaps’?

A) A contract where two parties exchange cash flows in different currencies at an agreed-upon exchange rate
B) A form of insurance against currency fluctuations
C) A method for countries to hold foreign reserves
D) A financial instrument used only for speculative purposes

 

What is a ‘tariff’?

A) A tax imposed by a government on imported goods
B) A loan provided by international financial institutions to fund foreign projects
C) A trade agreement between two or more countries to reduce barriers
D) A financial derivative used to hedge against currency risk

 

What does ‘hedging’ mean in the context of foreign exchange risk?

A) The practice of using financial instruments to reduce or eliminate the risk of adverse price movements in the foreign exchange market
B) The investment in foreign bonds to gain capital appreciation
C) The direct purchase of goods from foreign markets to improve profit margins
D) The process of securing loans from foreign banks to facilitate international trade

 

What is ‘nationalization’ in international trade and finance?

A) The process by which a government takes control of privately-owned companies or industries
B) The establishment of free trade zones within a country to encourage foreign investment
C) The act of regulating interest rates and exchange rates for stability
D) The development of international monetary policies that favor open markets

 

What is ‘currency depreciation’?

A) A decrease in the value of a country’s currency relative to other currencies
B) A strategy used to strengthen the domestic currency
C) The process of converting foreign currency into local currency
D) A form of political risk in foreign exchange markets

 

Which of the following is a function of the ‘International Monetary Fund’ (IMF)?

A) To provide short-term loans to countries facing balance of payments problems
B) To set tariffs on international trade to protect domestic industries
C) To determine exchange rates for the global economy
D) To control global interest rates and inflation

 

What is ‘capital flight’?

A) The rapid movement of capital out of a country due to political or economic instability
B) The process of borrowing funds from international financial institutions
C) The act of nationalizing foreign companies operating within a country
D) The act of selling off foreign bonds and investing solely in domestic assets

 

In the context of international finance, what is the ‘law of one price’?

A) The principle that identical goods or services should sell for the same price in two different markets when expressed in the same currency
B) The idea that a country’s economic output determines its exchange rate
C) The policy of governments controlling the prices of key goods within their borders
D) The process of setting standardized prices for global commodities

 

What is ‘political risk insurance’?

A) A type of insurance that protects investors from losses due to political instability or government actions in a foreign country
B) A form of life insurance for international business owners and executives
C) A policy that covers losses resulting from unfavorable currency movements
D) A financial tool used to reduce risks associated with importing goods

 

What is the main function of the ‘foreign exchange market’?

A) To enable the conversion of one currency into another to facilitate international trade and investment
B) To set the global prices of raw materials
C) To regulate tariffs and trade agreements between countries
D) To provide loans for international infrastructure projects

 

What does ‘currency devaluation’ mean?

A) A reduction in the value of a country’s currency relative to other currencies, often to improve export competitiveness
B) A sudden increase in the value of a country’s currency to curb inflation
C) The process of converting foreign currency reserves into gold
D) The establishment of a currency peg to stabilize exchange rates

 

What is a ‘bill of exchange’?

A) A financial document used in international trade that orders a buyer to pay a specified sum to the seller
B) A type of insurance policy covering the loss of goods in transit
C) A legal contract outlining the terms of an international partnership
D) A trade agreement that sets the price of goods exchanged between countries

 

What is a ‘trade deficit’?

A) A situation where a country’s imports exceed its exports, resulting in negative net exports
B) A condition where a country has more exports than imports, creating a surplus
C) A situation where a country imposes high tariffs to protect its industries
D) A situation where a country’s currency value increases due to strong exports

 

What is a ‘bilateral trade agreement’?

A) An agreement between two countries to reduce trade barriers and tariffs
B) A contract between a company and multiple governments regarding export duties
C) An international deal that sets global interest rates for trade financing
D) An agreement between international financial institutions to regulate loans

 

What is ‘repatriation of profits’ in international trade?

A) The process of transferring profits earned by a foreign subsidiary back to the parent company in the home country
B) The investment of foreign profits into international markets to diversify income streams
C) The payment of taxes to foreign governments on overseas earnings
D) The process of shifting profits from one foreign market to another

 

What is ‘import quota’?

A) A limit on the amount of a certain product that can be imported into a country
B) A tax on foreign goods entering the country
C) A government incentive for companies to produce locally
D) A policy allowing unlimited imports without tariffs

 

What is the ‘exchange rate mechanism’ (ERM) in the European Union?

A) A system designed to reduce exchange rate volatility and bring member countries’ currencies into alignment with the euro
B) A policy used by individual countries to determine their own exchange rates
C) A method of exchanging foreign currencies at fixed rates for international trade
D) A regulation used by non-EU countries to monitor their exchange rates

 

 

What is the primary goal of the World Trade Organization (WTO)?

A) To promote free trade by regulating international trade agreements and resolving disputes
B) To control the prices of essential goods across international markets
C) To ensure equal distribution of wealth between trading nations
D) To establish fixed exchange rates for all currencies

 

What is ‘foreign exchange risk’?

A) The risk that an investor or business will experience losses due to changes in exchange rates between currencies
B) The risk associated with changes in commodity prices for international traders
C) The risk of losing money through trade deficits in foreign countries
D) The risk of tariffs and quotas being imposed on exports

 

What is the primary function of the ‘export credit agency’ (ECA)?

A) To provide financing and insurance to support exporters against the risk of non-payment by foreign buyers
B) To enforce international laws governing trade disputes between countries
C) To regulate tariffs on exported goods in the international market
D) To set exchange rates for the foreign exchange market

 

What is a ‘foreign exchange forward contract’?

A) A financial agreement to exchange currencies at a predetermined rate on a specific future date
B) A type of trade agreement that sets the price for goods exchanged between countries
C) A loan given to a foreign company to support international expansion
D) An insurance policy against foreign exchange fluctuations

 

What is the ‘theory of comparative advantage’?

A) The theory that a country should specialize in producing goods where it has a lower opportunity cost than other countries
B) The concept that countries should impose tariffs to protect domestic industries
C) The idea that countries should invest equally in all industries to remain competitive
D) The theory that trade should be restricted to avoid reliance on foreign goods

 

What is ‘capital controls’?

A) Government policies that regulate the flow of foreign capital in and out of a country
B) Policies that allow companies to issue more shares in international markets
C) Mechanisms for controlling inflation in the international market
D) Regulations governing the distribution of profits between international branches

 

What is ‘trade liberalization’?

A) The process of reducing trade barriers, such as tariffs and quotas, to encourage free trade between countries
B) The creation of subsidies for domestic producers to encourage international exports
C) The imposition of strict regulations on imports to protect domestic industries
D) The establishment of economic sanctions to deter international trade

 

What is ‘currency speculation’?

A) The practice of buying and selling currencies with the goal of profiting from changes in exchange rates
B) The act of securing long-term loans in foreign currencies
C) The process of converting foreign currency to a fixed rate for international payments
D) A strategy used by governments to stabilize their currency

 

What is the ‘Bretton Woods Agreement’?

A) A system established in 1944 that set up fixed exchange rates between major currencies and the U.S. dollar
B) A trade agreement between the European Union and the United States to eliminate tariffs
C) A multinational agreement designed to regulate interest rates on international loans
D) A plan for controlling the prices of key commodities in the international market

 

What does ‘liquidity risk’ refer to in international finance?

A) The risk that an asset cannot be sold or converted into cash without a substantial loss in value
B) The risk that a country will default on its debt obligations
C) The risk of losing money due to currency devaluation
D) The risk associated with fluctuations in interest rates across international markets

 

What is ‘exchange rate risk’?

A) The risk of financial loss caused by fluctuations in the exchange rate between two currencies
B) The risk of not having enough foreign currency to meet international payment obligations
C) The risk of political instability affecting international trade agreements
D) The risk associated with changes in interest rates affecting international borrowing

 

What is ‘direct foreign investment’?

A) Investment by a company or individual directly into a foreign business or market
B) Investment in foreign bonds to diversify an investment portfolio
C) Investment in foreign governments to support economic development
D) Investment in foreign currency to hedge against exchange rate risk

 

What is ‘revaluation’ of a currency?

A) An increase in the value of a country’s currency relative to others
B) A decrease in the value of a country’s currency relative to others
C) The process of converting foreign currency reserves into domestic currency
D) The imposition of tariffs to protect domestic industries from foreign competition

 

What is ‘arbitrage’ in the context of international finance?

A) The practice of exploiting price differences of the same asset or currency in different markets to make a profit
B) The act of borrowing funds from one country at low interest rates to invest in another country
C) A method used to hedge against the risks of fluctuating exchange rates
D) A strategy used to purchase foreign bonds with the expectation of capital gains

 

What is the ‘purchase power parity’ (PPP) theory?

A) The theory that in the absence of transaction costs, exchange rates should adjust so that identical goods have the same price in different countries when expressed in the same currency
B) The theory that exchange rates are determined by the demand for a currency based on international trade
C) The theory that governments should set exchange rates based on inflation rates
D) The theory that exchange rates should be determined by the strength of a country’s monetary policy

 

What is ‘financial globalization’?

A) The increasing integration of financial markets and institutions across countries
B) The trend towards nationalization of foreign assets by governments
C) The establishment of fixed exchange rates between all major world currencies
D) The process of creating free trade zones within individual countries

 

What does ‘political risk’ refer to in international finance?

A) The risk that political instability, such as changes in government or nationalization of industries, may negatively affect international investments
B) The risk of currency fluctuations affecting foreign exchange transactions
C) The risk associated with trading in commodities across borders
D) The risk of financial loss due to changes in international interest rates

 

 

What is ‘currency devaluation’?

A) A deliberate reduction in the value of a country’s currency relative to other currencies
B) The process of increasing the value of a country’s currency to stimulate exports
C) The fluctuation in the value of a currency due to market forces
D) A government’s decision to allow its currency to float freely in the market

 

What does ‘international portfolio diversification’ aim to achieve?

A) To reduce risk by investing in assets across various countries and regions
B) To increase returns by focusing on the highest-performing international markets
C) To hedge against currency fluctuations by investing in foreign currency accounts
D) To limit exposure to international tax regulations by investing only in domestic markets

 

What is ‘currency risk management’?

A) The process of using financial instruments and strategies to mitigate losses from exchange rate fluctuations
B) The action of hedging against potential foreign trade losses by using international loans
C) The practice of stabilizing a nation’s economy through government intervention in foreign exchange markets
D) The method of assessing currency values based on their international purchasing power

 

What is an ‘export subsidy’?

A) A financial assistance provided by the government to encourage domestic companies to export goods
B) A tax applied to exported goods to generate government revenue
C) A fee charged to importers for bringing foreign goods into the country
D) A regulation that limits the number of goods that can be exported from a country

 

What is the role of the International Monetary Fund (IMF) in global finance?

A) To provide financial assistance and advice to countries facing balance of payments problems
B) To set international trade tariffs for member countries
C) To enforce global environmental regulations for trade
D) To regulate the prices of major global commodities like oil and gold

 

What is the ‘spot exchange rate’?

A) The current exchange rate at which a currency can be exchanged for another currency for immediate delivery
B) The expected exchange rate for a future date, used for forward contracts
C) The exchange rate applied to commodities in the international market
D) The exchange rate for currency that is traded on the black market

 

What is the concept of ‘managed float’ in exchange rate systems?

A) A system where the value of a currency is determined by market forces but can be occasionally adjusted by the central bank
B) A fixed exchange rate system maintained by the government
C) A situation where exchange rates are entirely determined by supply and demand without any government intervention
D) A system where the central bank sets exchange rates according to government policies

 

What is ‘trade finance’?

A) The financial products and services used by businesses to facilitate international trade, such as letters of credit and trade credit
B) The process of securing loans to finance domestic trade activities
C) The development of tariffs and taxes to govern international transactions
D) The management of national currencies to stabilize trade deficits

 

What does ‘import substitution’ refer to in international trade?

A) A strategy where a country aims to reduce dependency on foreign imports by developing domestic industries
B) The practice of replacing one imported product with another that is more cost-effective
C) A policy of encouraging imports to stimulate domestic competition
D) A government initiative to lower import duties and quotas

 

What is the ‘balance of payments’?

A) A comprehensive record of all financial transactions between a country and the rest of the world
B) The difference between a country’s exports and imports of goods and services
C) The total amount of a country’s foreign currency reserves
D) The government’s budget surplus or deficit in the international context

 

What is ‘political risk insurance’?

A) A form of coverage that protects investors from financial losses due to political instability or actions such as expropriation or nationalization
B) A type of insurance covering foreign exchange losses
C) A policy that guarantees returns on foreign investments despite political fluctuations
D) An insurance policy against changes in international trade laws

 

What is the ‘Gold Standard’ in the context of international monetary systems?

A) A system where currencies are directly linked to a specific amount of gold
B) The regulation of gold reserves to control currency exchange rates
C) The method by which governments guarantee the value of foreign currencies
D) A monetary policy that focuses on gold trading as the primary basis for global transactions

 

What is ‘currency hedging’?

A) The use of financial instruments such as futures, options, or swaps to protect against potential losses from currency fluctuations
B) The strategy of holding a large reserve of foreign currency to minimize risks
C) A method of shifting profits between subsidiaries in different countries to avoid exchange rate risks
D) The practice of investing in foreign government bonds to secure stable currency returns

 

What does the term ‘trade deficit’ mean?

A) A situation where a country imports more goods and services than it exports
B) A balance between the total imports and exports of a country
C) A surplus of exports over imports in international trade
D) A reduction in the value of a country’s currency due to an increase in exports

 

What is ‘import financing’?

A) The method of securing funds or credit to pay for goods and services imported from other countries
B) The process of using subsidies to encourage domestic companies to purchase imports
C) The financial assistance given by governments to reduce the cost of imports
D) The method of securing foreign exchange reserves to stabilize import prices

 

What is ‘export credit insurance’?

A) A type of insurance that protects exporters against the risk of non-payment or default by foreign buyers
B) A policy that ensures safe shipment of exported goods
C) Insurance that covers the cost of transportation for international exports
D) A guarantee provided by governments for the successful delivery of exports

 

 

What is the primary goal of the World Trade Organization (WTO)?

A) To facilitate the negotiation of trade agreements and settle disputes between member countries
B) To impose trade tariffs on all international imports
C) To provide foreign exchange services to member nations
D) To control the supply of global goods and services

 

Which of the following is the most commonly used financial instrument in international trade to reduce payment risks?

A) Letter of credit
B) Export subsidy
C) Currency swap
D) Forward contract

 

What is a ‘foreign exchange swap’?

A) A contract where two parties agree to exchange currencies for a specified time period and then reverse the exchange at a later date
B) A type of trade agreement to exchange goods between countries without any currency exchange
C) A financial instrument that eliminates the risk of foreign exchange fluctuations
D) A contract to borrow funds in foreign currency for a short period of time

 

What does the term ‘capital account’ refer to in the balance of payments?

A) A record of the net flow of capital into and out of a country, including foreign direct investment and portfolio investments
B) A part of the balance of payments that tracks the imports and exports of goods and services
C) The financial record of foreign exchange reserves
D) A measure of a country’s government debt and liabilities to foreign countries

 

What is ‘currency speculation’?

A) The act of buying and selling currencies based on expected future changes in exchange rates to make a profit
B) The decision to hold foreign currency reserves in anticipation of increased trade demand
C) The process of exchanging currencies for settling international transactions
D) The practice of stabilizing exchange rates by buying and selling government bonds

 

What is the ‘currency peg’ system?

A) A system where a country’s currency is fixed or tied to the value of another currency, often the U.S. dollar
B) A system that allows a country’s currency to fluctuate freely in the market
C) A method of determining exchange rates based on inflation differences
D) A system where the government regulates the demand for foreign currencies

 

Which of the following is a characteristic of a ‘floating exchange rate system’?

A) The exchange rate is determined by market forces of supply and demand
B) The government sets the exchange rate through centralized control
C) A fixed amount of currency is exchanged for another, regulated by the central bank
D) The exchange rate is determined by trade negotiations between governments

 

In the context of international finance, what is ‘transfer pricing’?

A) The method by which multinational corporations set prices for goods and services sold between their subsidiaries across different countries
B) A strategy to price foreign exchange transactions based on supply and demand
C) A regulatory mechanism to prevent capital flight between countries
D) The pricing of tariffs and duties on imported goods

 

What does the ‘political risk premium’ refer to in international finance?

A) The additional return required by investors to compensate for the risks associated with political instability or government actions in a foreign country
B) The fee charged for insurance against political risks
C) The cost of maintaining a stable political environment for foreign investors
D) The interest rate added to loans taken out by countries with high political risk

 

What is the main purpose of an ‘hedging strategy’ in international finance?

A) To reduce potential losses from unfavorable movements in exchange rates or other financial variables
B) To increase the exposure to risk for better returns
C) To engage in speculation for profit
D) To lock in long-term interest rates on government bonds

 

In the foreign exchange market, what is the ‘bid price’?

A) The price at which a buyer is willing to purchase a currency
B) The price at which a seller is willing to sell a currency
C) The current value of a currency relative to others
D) The price of a currency when traded on the black market

 

What is ‘economic exposure’ in terms of foreign exchange risk?

A) The impact of currency fluctuations on a company’s future cash flows, market value, and profitability
B) The potential for short-term losses in currency trading
C) The level of government intervention in exchange rate markets
D) The risk of exchange rate fluctuations on short-term international trade contracts

 

What is a ‘swap contract’ in the context of foreign exchange?

A) A contract where two parties agree to exchange currencies at specific terms and then reverse the exchange at a later date
B) A contract to exchange goods between two countries at a fixed price
C) An agreement to exchange future trade credits
D) A financial instrument used to settle international debts between countries

 

What does ‘trade liberalization’ involve?

A) Reducing trade barriers such as tariffs and quotas to encourage free international trade
B) Increasing trade restrictions to protect domestic industries
C) Setting maximum limits on the importation of goods from certain countries
D) Imposing higher taxes on imported goods to boost local production

 

What is the main risk associated with ‘political risk’ in international trade?

A) The possibility of losing money due to changes in government policies, political instability, or expropriation
B) The risk of losing a market due to economic downturns in the home country
C) The risk of trade restrictions or tariffs being imposed on exported goods
D) The possibility of not being able to obtain financing for international projects

 

What is ‘arbitrage’ in the context of international finance?

A) The practice of taking advantage of price differences in different markets by buying low in one market and selling high in another
B) The process of hedging against exchange rate fluctuations using futures contracts
C) The evaluation of long-term financial stability in a foreign investment
D) The use of foreign exchange swaps to minimize currency exposure

 

What does ‘open account’ payment mean in international trade?

A) A payment method where goods are shipped before payment is made, with the expectation of payment within a specified time period
B) A method of advance payment where the buyer pays before the shipment of goods
C) A financing option where a third-party intermediary pays for the goods on behalf of the buyer
D) A letter of credit issued by a financial institution to secure payment

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