International Finance Practice Exam

International Finance Practice Exam

 

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

A) To provide loans to developing countries
B) To regulate world trade agreements
C) To stabilize exchange rates and facilitate international payments
D) To provide capital investment for international businesses

 

Which of the following is a direct method of financing in international finance?

A) Issuing equity in international markets
B) Borrowing from foreign banks
C) Currency speculation
D) Derivatives trading

 

What is a major characteristic of the floating exchange rate system?

A) Exchange rates are determined by government policy
B) Exchange rates fluctuate based on market forces
C) Exchange rates are pegged to a gold standard
D) Central banks set exchange rates daily

 

Which of the following is an example of a financial instrument used to hedge foreign exchange risk?

A) Foreign bonds
B) Currency futures
C) Government bonds
D) Stock options

 

What is the ‘law of one price’ in international finance?

A) Prices in different countries are set by the IMF
B) The price of an identical good should be the same in two countries when expressed in a common currency
C) Exchange rates are determined by government policy
D) International prices are determined by the World Trade Organization

 

Which of the following describes the “purchasing power parity” (PPP) theory?

A) Exchange rates adjust to equalize the cost of living between two countries
B) Government intervention stabilizes currency markets
C) The supply of money drives exchange rate fluctuations
D) Interest rate changes are the main drivers of exchange rate movements

 

What is the primary risk in international financial markets?

A) Currency risk
B) Political risk
C) Interest rate risk
D) All of the above

 

Which of the following currencies is considered a ‘hard currency’?

A) Venezuelan bolivar
B) Japanese yen
C) Argentine peso
D) Zimbabwean dollar

 

Which of the following is an advantage of a fixed exchange rate system?

A) Exchange rates fluctuate freely according to market conditions
B) It reduces uncertainty for international trade and investment
C) It allows countries to implement independent monetary policies
D) It eliminates the need for foreign exchange reserves

 

What does ‘currency devaluation’ refer to?

A) A reduction in a currency’s exchange rate relative to other currencies
B) An increase in a currency’s exchange rate relative to other currencies
C) A tax imposed on foreign exchange transactions
D) A fixed exchange rate mechanism

 

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

A) To provide loans to member countries
B) To regulate global financial markets
C) To facilitate trade agreements and resolve disputes between countries
D) To manage international monetary policies

 

Which of the following factors most directly influences the spot exchange rate?

A) Inflation rates
B) Short-term interest rates
C) Political stability
D) All of the above

 

Which of the following is NOT a component of the balance of payments?

A) Current account
B) Capital account
C) Investment account
D) Financial account

 

What is the ‘foreign exchange market’ (Forex)?

A) A market where stocks of international companies are traded
B) A market where governments set exchange rates
C) A market where currencies are traded and exchanged
D) A market where goods and services are sold globally

 

In international finance, the term ‘arbitrage’ refers to:

A) The act of selling foreign currencies at a loss
B) The practice of taking advantage of price differences between markets to make a profit
C) The issuance of bonds by foreign governments
D) The regulation of exchange rates

 

What does a country’s ‘foreign exchange reserves’ consist of?

A) Foreign bonds and equities
B) Gold and foreign currency holdings
C) Domestic currency holdings
D) Domestic government bonds

 

Which exchange rate system allows the currency’s value to fluctuate freely based on market forces?

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

 

Which of the following is an example of political risk in international finance?

A) Fluctuation in foreign exchange rates
B) Government instability affecting investment returns
C) Rising interest rates in a foreign country
D) Changes in international trade policies

 

What is the main goal of ‘capital flight’ in an economy?

A) To attract foreign investment
B) To protect capital from a depreciating currency or unstable government policies
C) To increase exports
D) To boost domestic savings

 

What does the term ‘currency speculation’ involve?

A) Long-term investment in foreign stocks
B) Short-term trading of foreign currencies for profit based on expected price movements
C) Borrowing foreign currencies at low interest rates
D) Hedging foreign exchange risks using futures contracts

 

Which of the following is NOT typically used to calculate a country’s exchange rate?

A) Inflation rates
B) Government tax rates
C) Interest rates
D) Political stability

 

What does the ‘interest rate parity’ theory state?

A) Exchange rates are determined by inflation rates
B) The difference in interest rates between two countries should equal the difference in their exchange rates
C) Governments must set exchange rates according to the world market
D) Interest rates do not affect exchange rates

 

Which of the following describes ‘capital controls’?

A) Restrictions imposed by a government on the movement of capital in and out of the country
B) Policies to increase the supply of capital for domestic businesses
C) Methods to control inflation in foreign exchange markets
D) Regulations to ensure stable political environments

 

Which of the following is NOT a characteristic of a strong currency?

A) It tends to appreciate against other currencies
B) It increases the cost of exports
C) It makes imports cheaper
D) It boosts the domestic economy

 

What is a key factor that contributes to exchange rate volatility?

A) Low trade volumes
B) High levels of foreign direct investment
C) Political instability and economic uncertainty
D) Stable government policies

 

Which of the following is the main purpose of the Bretton Woods Agreement?

A) To create a unified global currency
B) To set fixed exchange rates for major world currencies
C) To eliminate tariffs on international trade
D) To regulate foreign investment in developing countries

 

In the context of international finance, what does the ‘currency swap’ agreement involve?

A) Two countries agree to exchange currencies at a fixed rate
B) The exchange of currency between two parties at a future date based on agreed terms
C) A government-controlled exchange rate policy
D) The permanent sale of foreign currency reserves

 

What is the primary reason for the implementation of exchange rate controls?

A) To promote international trade
B) To stabilize the domestic currency against excessive fluctuations
C) To eliminate inflation
D) To encourage foreign investments

 

Which financial instrument is commonly used by companies to hedge against foreign exchange risk?

A) Futures contracts
B) Bonds
C) Mutual funds
D) Equity securities

 

What does ‘balance of payments’ measure in international finance?

A) The total value of imports and exports in a country
B) The movement of capital and trade flows between a country and the rest of the world
C) The level of domestic savings in a country
D) The amount of money a country spends on foreign investment

 

 

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

A) The difference between the total imports and exports of goods and services
B) The total value of foreign investments in the country
C) The flow of capital between governments and foreign investors
D) The difference between the country’s debt and equity obligations

 

What is ‘exchange rate risk’?

A) The risk of losing capital in international financial markets
B) The risk that the value of a currency will fluctuate unpredictably
C) The risk of inflation impacting international investments
D) The risk of investing in foreign stocks

 

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

A) It eliminates the risk of inflation
B) It requires large foreign exchange reserves to maintain stability
C) It automatically adjusts to changes in economic conditions
D) It promotes unrestricted international trade

 

In the context of international finance, ‘capital account’ refers to:

A) The total value of financial transactions between residents of a country and foreigners
B) The income from goods and services exported by the country
C) The country’s expenditure on foreign assets
D) The import and export of domestic currency

 

What is meant by ‘currency risk’?

A) The risk that a country will default on its international debt obligations
B) The risk that an investor will lose money due to fluctuations in exchange rates
C) The risk that interest rates will rise in foreign countries
D) The risk of political instability in a country

 

Which of the following is an example of a derivative instrument used to hedge foreign exchange risk?

A) Foreign currency options
B) Treasury bonds
C) Common stocks
D) Gold futures

 

Which of the following describes the ‘Band’ system of exchange rates?

A) A system where exchange rates are allowed to float within a specified range
B) A system where the government determines the exchange rate daily
C) A system where exchange rates are fully flexible and determined by the market
D) A fixed exchange rate system with periodic adjustments

 

What is ‘financial globalization’?

A) The integration of national financial markets into the global economy
B) The movement of goods and services across borders
C) The process of restricting foreign capital flow into domestic markets
D) The establishment of a global common currency

 

What is the purpose of ‘currency pegs’?

A) To fix a country’s currency value to another currency to reduce volatility
B) To control the amount of foreign capital entering the market
C) To allow free-floating exchange rates to adjust according to demand
D) To eliminate foreign exchange markets

 

Which type of financial market facilitates the trade of foreign currencies?

A) Capital market
B) Foreign exchange market
C) Derivatives market
D) Commodity market

 

What is meant by ‘foreign exchange reserves’?

A) The total capital invested in foreign countries by a nation’s residents
B) A country’s stocks of foreign currencies held by its central bank
C) The total amount of bonds issued in foreign markets
D) The country’s assets invested in international markets

 

Which of the following is NOT a reason for a country to impose capital controls?

A) To stabilize its currency
B) To reduce the risk of financial crises
C) To attract foreign investment
D) To prevent rapid outflows of capital

 

What is a ‘currency swap’?

A) An agreement between two parties to exchange currencies at an agreed exchange rate at a future date
B) The buying and selling of currencies on a daily basis
C) An agreement to exchange foreign bonds between countries
D) The practice of converting one currency into another at market value

 

What is the ‘foreign exchange market intervention’?

A) The practice of a country’s central bank buying and selling its currency in the foreign exchange market
B) The control of foreign exchange rates through government regulation
C) The limitation of foreign investments in a country’s economy
D) The act of setting fixed exchange rates

 

Which of the following is an advantage of a floating exchange rate system?

A) It automatically adjusts to changes in economic conditions
B) It eliminates the need for government interventions
C) It maintains a stable currency value over time
D) It requires low reserves of foreign currency

 

Which financial instrument allows an investor to buy or sell foreign currency at a specified price at a future date?

A) Currency futures contract
B) Government bond
C) Corporate stock option
D) Treasury bill

 

What is the ‘triangular arbitrage’ in foreign exchange markets?

A) A strategy that involves the simultaneous exchange of three currencies to exploit discrepancies in their exchange rates
B) The exchange of two currencies in a market to make a profit
C) A strategy to hedge against exchange rate fluctuations using derivatives
D) The exchange of currency futures contracts for profit

 

What does ‘currency speculation’ entail in international finance?

A) Hedging against currency risk by investing in foreign assets
B) Trading currencies with the expectation of making a profit from price movements
C) Buying and holding foreign assets for long-term returns
D) Borrowing in foreign currencies to fund domestic projects

 

What is a key feature of ‘international diversification’ in financial markets?

A) Investing only in domestic assets to reduce risk
B) Allocating investments across different geographical regions to reduce risk
C) Focusing on the performance of one country’s economy
D) Limiting investments to assets denominated in one currency

 

What is meant by the ‘capital flow’ in the context of international finance?

A) The movement of money across borders for investment, trade, and financial activities
B) The exchange of goods and services between two countries
C) The issuance of government debt in foreign markets
D) The transfer of technology across international boundaries

 

What does the ‘fixed exchange rate system’ refer to?

A) A system where the value of a currency is determined by market supply and demand
B) A system where the value of a currency is pegged to another currency or a basket of currencies
C) A system where exchange rates fluctuate freely without government interference
D) A system where central banks determine interest rates

 

What is the primary function of the World Bank?

A) To regulate global financial markets
B) To provide loans to developing countries for infrastructure and development projects
C) To set global exchange rates
D) To supervise international trade agreements

 

What does ‘quantitative easing’ involve in international finance?

A) The reduction of interest rates to stimulate demand
B) The central bank purchasing long-term government bonds to inject liquidity into the economy
C) The imposition of capital controls to prevent outflows
D) The expansion of the money supply through the issuance of new currency

 

What is a ‘cross-currency swap’?

A) A transaction in which two parties agree to exchange currencies and interest payments
B) The simultaneous exchange of two currencies in a foreign exchange market
C) The exchange of bonds denominated in different currencies
D) The conversion of one currency to another at market value

 

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

A) It states that countries should specialize in producing goods where they have a relative efficiency in production
B) It argues that free markets should determine exchange rates
C) It advocates for trade protectionism to shield domestic industries
D) It suggests that all countries should have the same interest rates to promote trade

 

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

A) A loan provided by the central bank to stabilize the currency
B) A short-term loan provided by one company to another for the purchase of goods or services
C) A long-term loan to a foreign government for infrastructure development
D) A bond issued to finance international trade

 

What is a ‘currency forward contract’?

A) A contract to buy or sell a currency at a specific future date for a price agreed upon today
B) A financial instrument used to hedge against inflation
C) A contract to borrow a specific amount of currency at an agreed interest rate
D) A government agreement to control exchange rate fluctuations

 

What does the ‘exchange rate regime’ refer to?

A) The method a country uses to set and manage its currency exchange rates
B) The system that determines global trade agreements
C) The laws that govern foreign investments
D) The framework for financial regulation across borders

 

What does the ‘balance of payments surplus’ indicate?

A) A country’s exports exceed its imports, leading to an inflow of foreign currency
B) A country’s imports exceed its exports, resulting in capital outflow
C) A nation is facing a trade deficit and borrowing more from foreign sources
D) A country’s foreign debt exceeds its foreign assets

 

Which of the following is a key factor influencing long-term exchange rate movements?

A) Daily fluctuations in stock prices
B) Changes in the supply of money and inflation rates
C) Short-term shifts in interest rates
D) Political events in foreign countries

 

 

What is a ‘currency basket’?

A) A group of currencies that are used for hedging against inflation
B) A selection of different types of foreign currencies used for trade in international markets
C) A set of currencies that a country uses to back its own currency
D) A collection of foreign currencies weighted according to their economic importance or stability

 

What does ‘international portfolio diversification’ aim to achieve?

A) To reduce the risk by spreading investments across different countries and assets
B) To increase the return by focusing investments on one country
C) To eliminate exchange rate risk
D) To limit investments to low-risk domestic assets

 

Which of the following is NOT a factor that influences exchange rates in the long term?

A) Interest rates
B) Inflation rates
C) Political instability
D) Short-term speculations

 

What is the ‘Purchasing Power Parity (PPP)’ theory?

A) The theory that exchange rates should adjust so that identical goods cost the same in different countries
B) The theory that exchange rates are determined by the government’s monetary policy
C) The theory that currencies are backed by the physical reserves of gold
D) The theory that exchange rates reflect the balance of trade

 

What is ‘currency devaluation’?

A) The intentional decrease in the value of a country’s currency relative to others
B) The increase in a country’s foreign reserves
C) The rise in interest rates by a country’s central bank
D) The reduction in the level of government debt in a country

 

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

A) To provide loans and economic policy advice to member countries in need
B) To set the global exchange rates for all currencies
C) To control the trade tariffs between countries
D) To regulate the stock exchanges in member countries

 

What does ‘foreign direct investment (FDI)’ involve?

A) The investment made by a country’s government in foreign bonds
B) The acquisition or establishment of a business in a foreign country
C) The purchase of foreign currency to speculate on exchange rate movements
D) The investment in foreign securities through international stock markets

 

What is meant by ‘capital mobility’ in international finance?

A) The ability of financial institutions to move large amounts of capital across borders freely
B) The ease with which capital can flow into and out of a country’s financial markets
C) The ability to create new capital by printing money
D) The limitations imposed on financial transactions by national governments

 

Which of the following best describes ‘globalization’?

A) The process of closing national economies to protect local industries
B) The process of integrating economies, cultures, and societies across borders
C) The process of limiting foreign investment to promote domestic industries
D) The creation of regional trade agreements between neighboring countries

 

Which factor would likely lead to an appreciation of a country’s currency?

A) A decrease in the country’s inflation rate
B) An increase in the country’s trade deficit
C) A drop in the country’s interest rates
D) A decrease in foreign direct investment

 

What does ‘currency speculation’ involve?

A) Investing in foreign currencies to profit from expected price movements
B) Hedging against potential losses in foreign investments
C) Buying bonds in foreign countries
D) Investing in foreign direct investments for long-term growth

 

Which of the following is an example of ‘trade protectionism’?

A) A country imposing tariffs on imported goods
B) A country establishing free trade agreements with neighbors
C) A country allowing its currency to float freely in the foreign exchange market
D) A country encouraging foreign direct investment

 

What is ‘arbitrage’ in international finance?

A) The practice of simultaneously buying and selling the same asset in different markets to profit from price discrepancies
B) The exchange of currency at market value to hedge against exchange rate fluctuations
C) The use of a country’s foreign reserves to stabilize its currency
D) The trading of derivatives to limit risk exposure

 

What is a ‘swap transaction’ in foreign exchange markets?

A) A transaction where two parties agree to exchange currencies at an agreed rate for a set period of time
B) A contract where two parties agree to exchange bonds denominated in different currencies
C) A transaction where two parties agree to exchange goods and services for foreign currencies
D) A short-term trade involving currency futures

 

Which of the following describes a ‘soft currency’?

A) A currency that is widely traded and freely convertible
B) A currency that is controlled and heavily regulated by the government
C) A currency that is unstable and subject to significant fluctuation
D) A currency that is backed by gold reserves

 

What is a ‘currency peg’?

A) A system where a country’s currency is tied to the value of another currency or a basket of currencies
B) A system where a country’s currency freely fluctuates based on market forces
C) A process by which a country devalues its currency
D) A government policy aimed at controlling inflation through exchange rate regulation

 

Which of the following best defines ‘sovereign risk’?

A) The risk of default by a government on its international debt obligations
B) The risk that a country’s central bank will increase interest rates
C) The risk of a country’s currency being overvalued
D) The risk of foreign companies losing money due to domestic market conditions

 

What is ‘transaction exposure’ in the context of international finance?

A) The risk associated with the fluctuating values of a company’s currency-denominated transactions
B) The risk that political changes will affect international trade
C) The risk of losing capital due to illegal activities in foreign markets
D) The risk of exchange rate changes impacting long-term investments

 

What is a ‘foreign currency option’?

A) A contract that gives the holder the right, but not the obligation, to buy or sell a foreign currency at a predetermined price
B) A type of government bond issued in foreign currency
C) A government agreement to fix the value of a currency for a set period
D) A stock option tied to the performance of a foreign market

 

What is a ‘currency swap’ primarily used for?

A) To exchange fixed interest payments in one currency for floating payments in another
B) To buy and sell foreign currency at market prices
C) To stabilize the value of a country’s currency in the foreign exchange market
D) To hedge against inflation in foreign investments

 

What is ‘capital flight’?

A) The movement of capital out of a country due to economic or political instability
B) The investment of foreign capital into a country’s stock market
C) The return of foreign capital invested in domestic industries
D) The increase in foreign reserves by a central bank

 

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

A) The value of the currency is determined by the market supply and demand
B) The government fixes the currency value and rarely changes it
C) The currency is pegged to a major foreign currency
D) The central bank directly controls the exchange rate

 

What is the ‘Bretton Woods Agreement’ known for?

A) Establishing a system of fixed exchange rates and creating the IMF and World Bank
B) Allowing for free-floating exchange rates in all countries
C) Creating the European Union and its common currency
D) Introducing a global trade tariff system

 

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

A) A strategy used by companies to reduce the risk of adverse price movements in foreign exchange or commodities
B) A way to maximize investment returns by speculating in foreign markets
C) A method of imposing tariffs on imports to reduce trade deficits
D) The process of borrowing foreign currencies to finance local projects

 

Which of the following would most likely reduce a country’s trade deficit?

A) An increase in domestic production of exportable goods
B) An increase in foreign direct investment
C) A decrease in foreign exchange reserves
D) A reduction in tariffs on imports

 

What does the ‘Eurozone’ refer to?

A) A group of European countries that use the Euro as their common currency
B) The region where the Euro is pegged to the U.S. dollar
C) A currency exchange platform for European currencies
D) The group of European Union countries with the highest GDP

 

What is ‘financial contagion’?

A) The spread of economic instability or financial crises from one country to others
B) The rapid growth of capital markets in developing countries
C) The process of financial markets adjusting to global economic changes
D) The global increase in interest rates due to inflation

 

What does ‘international monetary system’ refer to?

A) The set of rules, institutions, and agreements that govern international monetary transactions
B) The set of regulations on foreign investment
C) The process of determining exchange rates between countries
D) The global management of money supply and inflation

 

What is ‘exchange rate speculation’?

A) The practice of buying and selling currencies to profit from expected changes in exchange rates
B) The use of foreign reserves to stabilize domestic exchange rates
C) The hedging of currency risk through derivative contracts
D) The borrowing of foreign currency to finance domestic projects

 

What is the ‘open economy’ concept in international finance?

A) A market that allows free exchange of goods, services, and capital across borders
B) A closed financial market that restricts foreign investments
C) An economy where currency value is fixed by government decree
D) A country that restricts trade to improve domestic production

 

 

What is ‘sovereign wealth fund’?

A) A fund managed by a government to invest in foreign assets
B) A private fund that deals with cross-border investments
C) A central bank’s reserve fund held in gold and foreign currency
D) A commercial bank’s fund for lending to foreign countries

 

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

A) The Japanese yen
B) The Venezuelan bolívar
C) The Zimbabwean dollar
D) The Cuban peso

 

What does ‘exchange rate risk’ refer to?

A) The potential for losses due to fluctuations in currency exchange rates
B) The uncertainty about government policies on foreign trade
C) The risk associated with the government’s fiscal deficit
D) The possibility of trade wars between countries

 

What is ‘external debt’?

A) The amount of money borrowed by a country from foreign lenders
B) The total value of all domestic government bonds
C) The debt that a country owes to international organizations such as the IMF
D) The national debt held by domestic residents

 

What is the ‘trilemma’ in international finance?

A) The theory that a country can achieve only two out of three goals: fixed exchange rate, free capital movement, and an independent monetary policy
B) The problem of balancing government debt, trade deficit, and exchange rate stability
C) The challenge of controlling inflation, reducing unemployment, and achieving growth
D) The conflict between national sovereignty and international trade agreements

 

Which of the following is NOT a type of international financial integration?

A) Financial globalization
B) Financial fragmentation
C) Cross-border capital flows
D) International portfolio investments

 

What is ‘capital controls’?

A) Regulations that limit the flow of capital in and out of a country
B) The taxation of foreign investments
C) The government-imposed value of a foreign currency
D) The rules regulating the use of domestic currency for international trade

 

What is a ‘foreign exchange reserve’?

A) The stockpile of foreign currencies held by a country’s central bank
B) The total amount of foreign assets owned by multinational corporations
C) The total amount of foreign debt owed by a country
D) The value of a country’s imports and exports

 

What does ‘open market operations’ refer to?

A) The buying and selling of government securities by a central bank to influence the money supply
B) The establishment of international trade tariffs
C) The setting of interest rates by the central bank
D) The issuing of new government bonds to finance projects

 

What is ‘interest rate parity’?

A) A theory that suggests that the difference in interest rates between two countries is equal to the expected change in exchange rates between those two countries
B) A theory that sets a fixed interest rate across all countries
C) A policy used to set interest rates for domestic banks only
D) A strategy used to manage inflation through interest rates

 

Which of the following describes a ‘currency crisis’?

A) A sudden and dramatic devaluation of a country’s currency, often caused by loss of investor confidence
B) A minor fluctuation in currency value due to market forces
C) A situation where the government stabilizes the currency by increasing interest rates
D) A minor fluctuation in a country’s trade deficit

 

What is the ‘Eurodollar market’?

A) A global market for deposits denominated in U.S. dollars outside the United States
B) A market where European currencies are traded
C) A market for U.S. dollars within the U.S. only
D) A market for gold backed by U.S. dollar reserves

 

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

A) The possibility of a change in the exchange rate negatively affecting the value of investments
B) The risk that a country’s economy will collapse due to political instability
C) The risk of not being able to convert foreign currency into the domestic currency
D) The fluctuation in interest rates across different countries

 

What is ‘dual currency’ in international finance?

A) A system where a country uses two different currencies simultaneously for different transactions
B) The practice of investing in two separate foreign currencies to mitigate risk
C) A method used to stabilize foreign exchange rates in emerging markets
D) The dual listing of financial instruments in two different currency zones

 

What does ‘global financial system’ refer to?

A) The collection of financial institutions, markets, and regulatory frameworks that facilitate global economic exchanges
B) The mechanism used by individual governments to control their domestic monetary policy
C) The network of banks within a country that handle international payments
D) The set of agreements between countries to standardize financial regulations

 

Which of the following is a characteristic of the ‘foreign exchange market’?

A) It operates without any centralized exchange, and transactions happen directly between parties
B) It is exclusively regulated by the World Bank
C) It is only available for government transactions
D) It is based entirely on the stock market’s performance

 

What is ‘trade liberalization’?

A) The removal or reduction of trade barriers such as tariffs and quotas
B) The creation of trade barriers to protect domestic industries
C) The nationalization of key industries in a country
D) The government intervention in setting export prices

 

What is a ‘cross-border leasing’ agreement?

A) A financial arrangement in which one party leases an asset to another party located in a different country
B) A method of tax avoidance used by multinational companies
C) A form of international investment where foreign investors purchase domestic companies
D) A government loan agreement between two countries

 

Which of the following describes ‘capital account’ in international finance?

A) A part of a country’s balance of payments that tracks the flow of capital across borders
B) A government-controlled account for tracking taxes on foreign investments
C) The record of trade deficits and surpluses in an economy
D) The total amount of foreign reserves in a country

 

What does ‘global liquidity’ refer to?

A) The ease with which assets can be converted into cash globally
B) The speed at which a country’s currency can be traded against other currencies
C) The total amount of cash in circulation worldwide
D) The speed at which a country can move funds across borders

 

What does ‘China’s Yuan’ (CNY) represent in the global financial market?

A) A currency with controlled convertibility, subject to government regulation and management
B) A widely traded reserve currency, similar to the U.S. dollar
C) A freely traded currency used for global transactions
D) A speculative currency used in emerging markets only

 

What is the primary purpose of the ‘World Trade Organization (WTO)’?

A) To regulate global trade and ensure trade flows as smoothly, predictably, and freely as possible
B) To fix exchange rates between major currencies
C) To manage capital flows and foreign exchange reserves
D) To create new currencies for developing countries

 

What is the main role of ‘financial derivatives’ in international finance?

A) To hedge against financial risks such as currency and interest rate fluctuations
B) To raise capital for international companies
C) To enforce trade agreements between countries
D) To control inflation and manage domestic monetary policy

 

Which of the following is a factor that could lead to a ‘currency appreciation’?

A) A country’s central bank raises interest rates, attracting foreign capital
B) A country experiences a trade deficit
C) A country’s inflation rate exceeds that of its trading partners
D) A country imposes capital controls on foreign investors

 

What is ‘trade balance’?

A) The difference between the value of a country’s exports and imports
B) The monetary value of foreign reserves held by a country
C) The total amount of capital flowing in and out of a country
D) The sum of foreign direct investments in a country

 

What is ‘global portfolio investment’?

A) The diversification of investments across various international markets and assets
B) The investment in foreign governments’ debt instruments
C) The practice of lending capital to foreign governments
D) The buying and selling of global commodities to profit from price fluctuations

 

What is ‘foreign exchange intervention’?

A) The buying or selling of a country’s own currency by its central bank to stabilize the exchange rate
B) The regulation of cross-border capital flows by national governments
C) The practice of setting fixed exchange rates between two currencies
D) The process of limiting the domestic currency’s value against global commodities

 

What is ‘international liquidity’?

A) The ability to buy and sell foreign currencies quickly without causing significant price changes
B) The total supply of money within the global economy
C) The amount of liquid assets available to governments and financial institutions globally
D) The ease with which a country’s financial system can handle inflation

 

What is ‘offshore banking’?

A) Banking services provided by banks in countries with low taxes and minimal regulation
B) The act of transferring funds across borders to avoid exchange rate risk
C) The provision of government loans to international banks
D) Banking transactions between foreign corporations and domestic banks

 

What is the ‘IMF Special Drawing Rights (SDRs)?

A) A reserve asset created by the IMF to supplement its member countries’ official reserves
B) A government bond used for international trade transactions
C) A trading system used for foreign currency exchanges
D) A foreign exchange policy adopted by the IMF to stabilize currencies

 

 

What is the ‘exchange rate regime’?

A) The rules or policies that determine how exchange rates are set
B) A system used to decide the interest rates in different countries
C) The method used to track inflation across different currencies
D) A set of rules governing international trade agreements

 

What does ‘devaluation’ refer to?

A) A deliberate decrease in the value of a country’s currency relative to other currencies
B) A sudden market reaction that reduces the currency value due to economic crisis
C) A strategy used by multinational corporations to hedge against inflation
D) A situation where inflation decreases due to lower demand for goods and services

 

What is ‘foreign exchange market efficiency’?

A) The ability of the market to incorporate all available information into the currency price
B) The rate at which countries exchange their currencies for a fixed price
C) The government’s control over the flow of capital into the foreign exchange market
D) The speed at which currency transactions are executed

 

What is ‘foreign direct investment’ (FDI)?

A) An investment made by a company or individual in assets or businesses located in a foreign country
B) A loan given by a foreign government to a national economy
C) The purchase of foreign stocks or bonds by a domestic investor
D) The transfer of funds from foreign countries to support domestic companies

 

Which of the following describes ‘currency depreciation’?

A) A decrease in the value of a country’s currency relative to other currencies due to market forces
B) A deliberate effort by a government to reduce its currency’s value
C) A policy by central banks to raise interest rates
D) A mechanism to protect a country from international trade disputes

 

What is the ‘Bretton Woods Agreement’?

A) An agreement that established fixed exchange rates between major currencies after World War II
B) A trade deal that regulated global tariffs on goods
C) A treaty that set the standard for international banking regulations
D) An agreement for establishing the European Union’s economic policies

 

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

A) To promote international monetary cooperation and exchange rate stability
B) To set up policies for protecting national industries from international competition
C) To manage the global supply of commodities like oil and gold
D) To regulate the number of currency exchanges that occur globally

 

What is ‘transfer pricing’?

A) The method by which multinational corporations set prices for transactions between their subsidiaries in different countries
B) The regulation of currency flows across national borders
C) The exchange rate set by central banks for cross-border transactions
D) The taxation of profits made by foreign investors

 

What is ‘currency speculation’?

A) The practice of buying or selling currencies in the hopes of making a profit from changes in exchange rates
B) The government-imposed price control of domestic currencies
C) The act of maintaining a foreign currency reserve to protect the economy
D) A strategy used by multinational companies to stabilize long-term currency risks

 

What does ‘covered interest parity’ refer to?

A) The condition where the forward exchange rate is set in a way that eliminates arbitrage opportunities
B) The situation where the interest rate and currency values are equal across different countries
C) A system used by central banks to control domestic inflation rates
D) The balance of trade between two countries with similar interest rates

 

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

A) A theory stating that in the long term, exchange rates should adjust to equalize the price of an identical basket of goods in any two countries
B) A theory that suggests all international transactions should occur at a fixed exchange rate
C) A method used by governments to regulate the global supply of currency
D) A model for forecasting the future performance of multinational corporations

 

What is ‘monetary policy’?

A) The actions taken by a central bank to control the money supply and interest rates in the economy
B) The process of setting trade tariffs between countries
C) The regulation of multinational investment activities
D) The creation of foreign exchange reserves by a national government

 

Which of the following is an example of ‘non-resident capital flow’?

A) Foreign direct investment made by a company from outside the country
B) The remittance of wages by citizens working abroad
C) The purchase of government bonds by foreign investors
D) The transfer of foreign assets into domestic banks

 

What does ‘offshore investment’ mean?

A) An investment made in financial assets located in a foreign country, typically for tax or regulatory advantages
B) The trade of raw materials between neighboring countries
C) The sale of local bonds to foreign nationals
D) The purchase of international stock markets by domestic investors

 

What is ‘capital flight’?

A) The rapid outflow of capital from a country, often due to political instability or economic uncertainty
B) The action of investing heavily in foreign securities
C) The strategy used by countries to retain foreign investments
D) The conversion of foreign currency into local currency

 

What is the primary purpose of ‘exchange rate targeting’?

A) To maintain a stable exchange rate between a country’s currency and a foreign currency
B) To set long-term fixed interest rates across all financial markets
C) To regulate international trade tariffs
D) To manipulate capital flows between countries

 

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

A) The integration of national economies into a global marketplace through the movement of goods, services, capital, and labor
B) The practice of localizing business operations to cater to individual national markets
C) The process of restricting financial flows to protect domestic industries
D) The creation of national trade agreements to limit foreign involvement in local markets

 

What does ‘cross-border trade’ involve?

A) The exchange of goods and services between countries
B) The regulation of financial institutions within a specific country
C) The development of monetary policies by international organizations
D) The establishment of a single global currency

 

What is ‘hedging’ in international finance?

A) The practice of using financial instruments to reduce or eliminate the risk of adverse currency movements
B) The practice of increasing exposure to a particular foreign currency
C) A method used by governments to stabilize the domestic currency
D) The regulation of interest rates by foreign central banks

 

What is ‘trade liberalization’?

A) The removal or reduction of trade barriers like tariffs to promote free trade between countries
B) The practice of restricting foreign goods from entering a country’s markets
C) A policy to restrict the flow of foreign capital into a country’s economy
D) The introduction of quotas on domestic industries for international protection

 

 

What does the ‘law of one price’ state?

A) In an efficient market, identical goods should have the same price when expressed in a common currency
B) The price of goods and services varies due to inflation across countries
C) Currency values are fixed by central banks to maintain market stability
D) The value of money decreases when there is higher inflation

 

What is the ‘currency swap’ mechanism?

A) A financial agreement between two parties to exchange currencies at a set rate over a defined period
B) A process of converting foreign currency into the home currency for trade
C) The practice of central banks exchanging national currencies for reserves
D) A trade arrangement to stabilize the foreign exchange market by restricting currency flows

 

What is the primary risk associated with ‘currency devaluation’?

A) It can make a country’s exports cheaper, but increases the cost of imports
B) It increases the value of foreign debt and decreases domestic spending
C) It increases international interest rates, which lowers borrowing costs
D) It leads to stronger demand for the domestic currency in the global market

 

What is ‘arbitrage’ in international finance?

A) The simultaneous purchase and sale of the same asset in different markets to profit from price discrepancies
B) The transfer of assets from one country to another for tax purposes
C) The practice of investing in emerging markets to increase returns
D) A strategy used by governments to fix exchange rates in the short-term

 

What does the ‘open economy’ concept refer to?

A) An economic system that freely engages in international trade without restrictions
B) A financial strategy that limits foreign investments to ensure domestic growth
C) The practice of controlling capital flows through state-owned banks
D) A policy used to set a country’s internal interest rates in isolation from external markets

 

What does ‘capital controls’ refer to?

A) Government-imposed restrictions on the flow of capital in and out of the country
B) A mechanism to fix exchange rates between countries
C) The regulation of foreign exchange markets to ensure liquidity
D) The setting of tariffs on imports to balance trade deficits

 

What is ‘currency risk’ or ‘exchange rate risk’?

A) The potential for a company’s profits to be affected by fluctuations in the exchange rate between currencies
B) The risk of financial loss due to the movement of interest rates across countries
C) The risk associated with geopolitical instability affecting financial markets
D) The risk that national inflation rates will devalue assets held in foreign markets

 

What does the ‘interest rate parity’ theory suggest?

A) The difference in interest rates between two countries is offset by the forward exchange rate
B) Interest rates should remain the same across countries to ensure trade equilibrium
C) Exchange rates are determined by the relative inflation rates in different economies
D) Investors will choose the market with the highest interest rates regardless of exchange rate movement

 

What is ‘multinational capital budgeting’?

A) The process of evaluating investment projects across multiple countries and currencies
B) The allocation of national funds to foreign governments for development projects
C) A policy where multinational firms limit their capital expenditures in developing countries
D) A method used by countries to attract foreign capital through incentives

 

Which of the following is a direct impact of ‘foreign exchange risk’?

A) Companies may face higher costs when repaying foreign-denominated debt
B) The interest rates for loans in domestic markets increase significantly
C) Trade tariffs are imposed to protect domestic markets from foreign competition
D) A country’s credit rating is reduced due to lack of export opportunities

 

What is ‘exchange rate risk’?

A) The risk that currency fluctuations will affect the value of financial transactions in foreign currencies
B) The risk that foreign governments will impose tariffs on exports
C) The risk that inflation will reduce the purchasing power of the currency
D) The risk that domestic prices will become higher due to foreign competition

 

What is the ‘global capital market’?

A) The financial market that facilitates the trading of securities across national borders
B) A marketplace where only government bonds are exchanged
C) A system where foreign currencies are exchanged at fixed rates
D) A domestic market restricted to local securities

 

What is ‘exchange rate volatility’?

A) The fluctuations in the value of a currency relative to others in the foreign exchange market
B) The movement of international trade due to changes in tariff rates
C) The steady value of a currency maintained by a government central bank
D) The constant value of goods exchanged between two countries

 

What does ‘capital mobility’ refer to?

A) The ease with which capital (financial assets) can move across borders in response to international opportunities
B) The ability of governments to restrict foreign investment in domestic industries
C) The capacity of central banks to stabilize the currency in times of market fluctuations
D) The ability to borrow funds from international financial institutions without any restrictions

 

What is ‘sovereign risk’?

A) The risk that a government may default on its debt obligations or fail to meet financial commitments
B) The risk that a government will impose high taxes on foreign investors
C) The risk that domestic currency values will increase in relation to foreign currencies
D) The risk associated with political instability affecting stock market returns

 

What is the ‘international monetary system’?

A) A global network of institutions and policies used to manage exchange rates, international trade, and capital flows
B) A collection of global banks that control the issuance of foreign currency
C) A set of rules governing the interest rates for international loans
D) A system that determines global stock market regulations

 

What does ‘global financial integration’ involve?

A) The process by which global financial markets become interconnected, leading to greater cross-border capital flows
B) The restriction of international trade to protect local financial institutions
C) The establishment of a single international currency for all countries
D) The creation of tariffs to limit the impact of foreign investments on domestic economies

 

What is ‘systemic risk’ in international finance?

A) The risk that a major financial institution or event will lead to a breakdown of the entire financial system
B) The risk of inflation in global markets
C) The risk that one country will impose economic sanctions on another country
D) The risk that international companies will pull their investments from a region

 

What is ‘money laundering’ in international finance?

A) The illegal process of making large sums of money obtained through criminal activity appear legitimate
B) The process of converting foreign currency into domestic currency to avoid exchange rate fluctuations
C) A method used by governments to track cross-border capital flows
D) The regulation of financial transactions to prevent foreign investments in illegal markets

 

What is the ‘Nixon Shock’?

A) The event in 1971 when the United States abandoned the gold standard and devalued the U.S. dollar
B) The introduction of free trade policies between the U.S. and China
C) A political scandal that led to economic instability in the U.S. in the 1970s
D) The creation of the World Trade Organization in 1995

 

 

What is the ‘Bretton Woods Agreement’?

A) A set of rules established in 1944 to create a system of fixed exchange rates between major currencies and the U.S. dollar
B) An agreement to regulate trade tariffs between countries to promote global trade
C) A financial treaty that regulated international foreign exchange markets until the 1980s
D) An agreement that unified European countries into a single economic zone

 

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

A) A system where countries’ currencies are directly linked to a specified amount of gold
B) A policy of maintaining gold reserves in national treasuries to back currency issuance
C) A measure of a country’s economic growth based on gold mining and reserves
D) The practice of fixing the prices of goods and services based on gold prices

 

What does ‘foreign exchange market’ (Forex) involve?

A) The global market for buying and selling currencies
B) The exchange of stocks and bonds between countries
C) The international market for trading commodities such as oil and gold
D) The process by which central banks determine national interest rates

 

What is ‘inflation targeting’ in international monetary policy?

A) A central bank policy aimed at maintaining inflation at a predetermined level
B) The process of controlling exchange rates to stabilize domestic inflation
C) A monetary policy that reduces capital flows across borders to maintain price stability
D) A practice where governments set price controls on essential goods to limit inflation

 

What is ‘currency intervention’?

A) The act of a central bank buying or selling its own currency in the foreign exchange market to influence exchange rates
B) A policy to fix exchange rates between two countries through mutual agreements
C) The imposition of taxes on imports and exports to manage currency fluctuations
D) The regulation of currency exchange to maintain the country’s gold reserves

 

Which of the following is an example of a ‘forward exchange contract’?

A) A contract where two parties agree to exchange currencies at a future date at a predetermined exchange rate
B) A type of loan agreement where interest rates are fixed for future payments
C) A trade agreement that allows countries to buy and sell currencies on the spot market
D) A government regulation that fixes exchange rates between two countries

 

What is ‘currency speculation’?

A) The practice of buying and selling currencies in anticipation of future exchange rate fluctuations for profit
B) The process of determining the value of a currency based on economic indicators
C) A method of calculating international debt obligations using exchange rates
D) The act of stabilizing currency values through long-term investment in foreign markets

 

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

A) A system used to regulate the exchange rates of EU currencies in relation to each other, aiming for stability
B) The process of setting tariffs on foreign goods to manage trade imbalances
C) A system that sets global exchange rates for currencies based on gold reserves
D) A mechanism used to ensure the European Central Bank maintains consistent interest rates

 

What is ‘foreign exchange risk management’?

A) The strategies used by businesses and investors to mitigate the financial impact of currency fluctuations
B) The process of regulating exchange rates to prevent devaluation of national currencies
C) The practice of controlling capital flows into and out of a country to avoid inflation
D) The act of exchanging currencies in the spot market to hedge against future losses

 

What is the ‘hedging’ technique in international finance?

A) A risk management strategy used to offset potential losses in one asset by taking an opposite position in a related asset
B) A process used to stabilize exchange rates between two countries by regulating capital flows
C) The practice of investing in low-risk securities to avoid financial losses
D) A technique used to invest in emerging markets with high potential for return

 

What is ‘capital flight’?

A) The movement of capital out of a country due to instability or adverse economic conditions
B) The process by which a country reduces foreign investments to protect domestic assets
C) The tendency of multinational corporations to increase investments in foreign countries
D) The restriction on capital flows into a country due to high inflation rates

 

What is the ‘exchange rate system’ in international finance?

A) The system by which countries determine and manage the value of their currencies relative to each other
B) A policy regulating the prices of imports and exports to balance trade deficits
C) A mechanism for controlling international interest rates to stabilize foreign investments
D) The system by which global stock exchanges set international trade tariffs

 

What is ‘currency pegging’?

A) A policy where a country’s currency is tied to the value of another currency, typically the U.S. dollar or gold
B) A practice where governments exchange their currency with foreign reserves in the spot market
C) The adjustment of interest rates to control inflation in international markets
D) A strategy used to manage the supply of money in the domestic economy

 

What does ‘purchasing power parity’ (PPP) theory suggest?

A) That in the long term, exchange rates should adjust so that identical goods and services cost the same across countries
B) That the value of money in one country is fixed relative to the value of money in another country
C) That exchange rates are primarily determined by the level of foreign reserves in a country
D) That interest rates play a major role in determining exchange rate fluctuations

 

What is ‘capital structure’ in international finance?

A) The mix of debt and equity that a company uses to finance its operations, both domestically and internationally
B) The ratio of a country’s exports to its imports, affecting its balance of payments
C) The value of foreign assets held by domestic corporations in international markets
D) The strategy of using foreign investments to reduce a company’s exposure to domestic market risks

 

What is ‘direct foreign investment’ (FDI)?

A) Investment made by a company or individual in business interests in another country, such as establishing a subsidiary
B) Investment made in foreign exchange markets to capitalize on currency fluctuations
C) The process of purchasing foreign government bonds as a form of capital transfer
D) Investment by multinational firms in emerging market economies through loans or aid

 

What is ‘currency risk exposure’?

A) The potential for a company’s financial performance to be affected by changes in exchange rates
B) The process of transferring financial assets across borders to reduce potential risks
C) A measure of the risk associated with investing in foreign stocks and bonds
D) The exposure of multinational companies to international credit markets

 

What is ‘foreign exchange intervention’?

A) The action taken by a government or central bank to influence the value of its currency in the foreign exchange market
B) The process of regulating interest rates to stabilize the capital markets in a given country
C) The process of governments enforcing tariffs to reduce reliance on foreign currencies
D) The restriction of foreign capital inflows to protect the domestic currency from depreciation

 

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

A) The ease with which assets can be bought or sold in the market without affecting the asset’s price
B) The ability of a country’s central bank to intervene in the foreign exchange market
C) The process of balancing a country’s current account by adjusting trade tariffs
D) The degree of government control over the financial markets and exchange rates

 

What is ‘volatility’ in international finance?

A) The degree of fluctuation in the price of a currency or financial asset over time
B) The ability of financial markets to absorb foreign investments without major price changes
C) The process of adjusting monetary policy to maintain stable currency values
D) The stabilization of exchange rates to avoid inflationary risks

 

 

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

A) An international organization created to promote financial stability, economic growth, and facilitate trade among nations
B) A global organization that focuses on managing world natural resources for sustainable development
C) A regulatory body that oversees the exchange rates for all major currencies globally
D) A private sector entity providing loans to multinational companies

 

What does ‘sovereign debt’ refer to?

A) Debt issued by a national government to finance its budget deficits or public projects
B) Debt incurred by multinational corporations operating in foreign markets
C) Loans taken by financial institutions to facilitate international trade
D) Bonds issued by private entities that are secured by government guarantees

 

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

A) The integration of financial markets, economies, and policies around the world
B) The process of creating international trade barriers to protect domestic economies
C) The policy of maintaining fixed exchange rates among all global currencies
D) A method of redistributing wealth from developed to developing countries through taxation

 

What is the ‘equity market’ in international finance?

A) A marketplace where stocks and shares of companies are traded globally
B) A market for the exchange of government bonds and other debt securities
C) A financial market for buying and selling commodities such as oil and metals
D) A system of trading currency pairs to profit from exchange rate fluctuations

 

Which of the following best describes ‘currency depreciation’?

A) A decrease in the value of a country’s currency relative to other currencies
B) An increase in the money supply causing inflation and higher currency value
C) A fixed exchange rate system in which a currency is artificially maintained at a high level
D) The direct manipulation of foreign exchange rates by central banks

 

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

A) To promote international trade by regulating tariffs and trade barriers
B) To maintain fixed exchange rates between countries’ currencies
C) To manage global financial crises and prevent currency devaluation
D) To provide loans to developing nations for infrastructural projects

 

What is ‘currency overvaluation’?

A) When a currency’s value is higher than its market equilibrium, often due to government intervention
B) The tendency for foreign currencies to depreciate when a country experiences inflation
C) The act of setting exchange rates at artificially low levels to encourage exports
D) The process of adjusting exchange rates based on international trade volume

 

What is ‘capital mobility’?

A) The ease with which capital can move across borders to different financial markets
B) The degree to which a government controls its currency exchange rates
C) The ability of foreign investors to purchase domestic assets
D) The process of limiting foreign investments to safeguard national interests

 

What is ‘foreign currency futures’?

A) A financial contract to buy or sell a specific amount of currency at a future date, at a predetermined exchange rate
B) A government bond denominated in a foreign currency
C) A debt instrument issued by multinational corporations in foreign currencies
D) A loan agreement where the currency value is subject to fluctuation based on market rates

 

What does ‘balance of payments’ (BOP) measure?

A) The record of all economic transactions between residents of a country and the rest of the world
B) The difference between a country’s imports and exports in a given period
C) The process of managing the supply of money within a country’s economy
D) The amount of foreign currency reserves held by a country’s central bank

 

What is ‘political risk’ in international finance?

A) The potential for a country’s political environment to affect its economic stability or investment returns
B) The risk that global markets will fail to react to changes in international finance policies
C) The risk of inflationary policies negatively impacting foreign exchange rates
D) The risk of government over-regulation of foreign exchange markets

 

What is ‘arbitrage’ in international finance?

A) The practice of taking advantage of price differences in different markets by buying low in one and selling high in another
B) The process of stabilizing exchange rates between two countries’ currencies
C) The regulation of international financial markets by central banks to ensure fairness
D) The method of investing in government bonds to reduce exchange rate risk

 

What does ‘interest rate parity’ (IRP) theory suggest?

A) The difference in interest rates between two countries will be offset by the change in their exchange rates over time
B) The global exchange rates are determined solely by the relative interest rates of central banks
C) Interest rates do not have any impact on foreign exchange rate movements
D) Countries with higher interest rates will experience depreciation in their currency

 

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

A) The part of the balance of payments that includes trade in goods, services, and income from investments
B) A financial statement that tracks the liabilities and assets of a country’s foreign investments
C) The account that records the movement of capital inflows and outflows from foreign direct investment
D) The record of the national government’s debt payments and fiscal balances

 

What is ‘repatriation of profits’?

A) The process of transferring profits earned by foreign subsidiaries back to the parent company in the home country
B) The transfer of currency from a country’s central bank to international markets to stabilize exchange rates
C) The act of a foreign investor withdrawing capital from a host country due to instability
D) The process of converting foreign currency into the local currency for domestic use

 

What is a ‘swap agreement’ in international finance?

A) A financial contract in which two parties exchange currency or interest payments to manage financial risks
B) An agreement to fix exchange rates for a specified period to mitigate volatility
C) A process in which one country agrees to trade its foreign reserves for a different asset type
D) A global financial protocol aimed at stabilizing interest rates across economies

 

What is a ‘multinational corporation’ (MNC)?

A) A corporation that operates in multiple countries, typically managing subsidiaries and affiliates globally
B) A financial institution that provides loans to governments in exchange for political influence
C) A central bank that oversees the foreign exchange market of a country
D) A company that only trades domestically but owns international stocks

 

What is the purpose of ‘foreign exchange reserves’?

A) To stabilize a country’s currency and manage exchange rate fluctuations
B) To limit the inflow of foreign investments to protect the national economy
C) To help manage government debt payments in foreign currencies
D) To accumulate wealth from interest on foreign loans

 

What is ‘risk premium’ in international finance?

A) The additional return required by investors to compensate for the risks associated with investing in a particular country or asset
B) The tax imposed on international transactions to cover risk management costs
C) The interest rate charged by central banks to domestic lenders
D) The protection provided by international insurance companies for foreign investments

 

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

A) The potential for financial losses due to fluctuations in the value of currencies in the foreign exchange market
B) The risk that governments will alter trade policies, leading to higher tariffs
C) The risk of a country defaulting on its foreign debt obligations
D) The possibility that global stock markets will crash due to political instability

 

 

What is ‘covered interest rate parity’?

A) A financial theory that suggests that the difference in interest rates between two countries will be offset by the forward exchange rate
B) A strategy where investors invest in foreign currencies with higher interest rates to earn higher returns
C) A method to manage inflation risks by securing a fixed interest rate across international markets
D) A condition where exchange rate changes are eliminated through futures contracts

 

What is the ‘European Monetary System’ (EMS)?

A) A system of fixed exchange rates between European Union countries designed to stabilize their currencies
B) A regulatory body overseeing the foreign exchange transactions of European countries
C) A system for establishing interest rates across all European countries
D) A political union to align foreign financial policies between European countries

 

Which of the following is NOT a component of the balance of payments?

A) Current account
B) Capital account
C) Currency exchange account
D) Financial account

 

What is the primary function of the World Bank?

A) To provide financial and technical assistance for projects aimed at reducing poverty in developing countries
B) To regulate international trade and prevent unfair competition
C) To act as a global central bank providing loans to sovereign nations
D) To manage global financial stability by regulating the flow of capital between nations

 

What does ‘currency speculation’ involve?

A) The practice of buying or selling currencies in the foreign exchange market with the intention of profiting from changes in exchange rates
B) The policy of governments controlling the exchange rates of their currencies
C) The trading of government bonds in foreign markets to earn fixed returns
D) The practice of central banks making speculative investments in foreign equity markets

 

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

A) The risk a company or investor faces due to fluctuations in exchange rates or foreign investments
B) The potential for a country’s domestic market to be affected by foreign financial crises
C) The level of government regulation on foreign investments in a country
D) The strategies used by banks to diversify their currency holdings

 

What is ‘foreign direct investment’ (FDI)?

A) The investment made by a firm or individual in physical assets or businesses in a foreign country
B) The process of investing in foreign currency markets to gain profits from exchange rate changes
C) The acquisition of government bonds in foreign countries for long-term financial returns
D) The practice of purchasing international stocks to diversify a domestic portfolio

 

What is ‘capital flight’?

A) The rapid outflow of capital from a country, typically due to political instability or economic crisis
B) The large-scale investments made by foreign investors in a domestic market
C) The gradual depreciation of a country’s currency in response to rising foreign interest rates
D) The decision by multinational corporations to relocate their operations abroad

 

What does ‘exchange rate regime’ refer to?

A) The system a country adopts to determine and manage its currency’s exchange rate relative to other currencies
B) The practice of central banks adjusting the interest rate to stabilize currency value
C) The set of rules that dictate the regulation of cross-border capital flows
D) The strategy used by countries to control inflation by setting fixed exchange rates

 

What is the ‘Bretton Woods System’?

A) A global monetary system established after World War II that pegged currencies to the U.S. dollar, which was backed by gold
B) A system that facilitates the free exchange of foreign currencies between developed nations
C) A treaty that promoted economic cooperation between the U.S. and European nations
D) A regulatory framework to limit the capital inflows and outflows between countries

 

What does ‘multinational capital market’ refer to?

A) A market where securities, financial assets, and investments are traded across national borders
B) A specific financial market for trading physical commodities like oil and gold globally
C) A centralized financial platform where all countries trade government bonds
D) A global exchange dedicated to managing the supply of money and issuing interest-bearing securities

 

What is ‘risk-adjusted return’?

A) A measure of return on investment that takes into account the risk associated with that investment
B) The return provided by an investment after considering market volatility
C) A process where investors use hedging strategies to reduce the risk of loss
D) The expected return from an investment based solely on its risk-free rate

 

Which of the following describes the ‘bank for international settlements’ (BIS)?

A) A global financial institution that facilitates cooperation among central banks and international financial authorities
B) A commercial bank specializing in loans for multinational corporations
C) A financial institution providing loans to emerging markets in exchange for political concessions
D) A bank that issues international bonds for governments and corporations

 

What is the ‘trade balance’?

A) The difference between the value of a country’s exports and imports of goods and services
B) The value of foreign investments made in a country over a certain period
C) The amount of foreign currency held by a country’s central bank
D) The net flow of foreign exchange reserves into and out of a country

 

What is ‘currency risk’?

A) The risk of losing value in an investment due to fluctuations in exchange rates
B) The risk that a country’s central bank will increase interest rates unexpectedly
C) The risk that a government will default on its international loans
D) The risk of having international assets become illiquid due to political instability

 

What does ‘hedging’ mean in international finance?

A) A strategy used to reduce or offset potential losses due to fluctuations in exchange rates or commodity prices
B) A process of trading foreign securities in a way that maximizes profit without any risk
C) The purchase of government bonds to protect against interest rate changes
D) A method for reducing taxation on international profits

 

Which of the following best describes the ‘Eurocurrency market’?

A) A global market where currencies are deposited in banks outside their country of origin
B) A market where investors buy and sell Euro-denominated bonds issued by the European Union
C) The currency exchange market for trading the euro against other international currencies
D) A market that deals exclusively with the exchange of currencies in the European Union

 

What is ‘open economy’ in international finance?

A) An economy that allows free trade and capital flows with minimal government restrictions
B) An economy that is closed off to international trade and focuses on self-sufficiency
C) A government system where foreign investors are given preferential treatment
D) An economy that relies on protectionist policies to safeguard domestic industries

 

What does ‘foreign exchange intervention’ mean?

A) The act of a central bank or government entering the foreign exchange market to influence the exchange rate of its currency
B) The decision by foreign investors to stop investing in a country’s currency
C) The practice of exporting large amounts of foreign currency reserves to stabilize domestic prices
D) The buying and selling of government bonds to affect the global foreign exchange rate

 

What is ‘currency pegs’?

A) A policy where a country’s currency is tied to the value of another country’s currency or a basket of currencies
B) A method of controlling inflation by adjusting currency values in international markets
C) A system where central banks set interest rates to control exchange rates
D) A practice of using gold as a reserve to control the value of a currency

 

 

What does ‘the Fisher effect’ describe in international finance?

A) The relationship between nominal interest rates, real interest rates, and inflation rates
B) The connection between government fiscal policies and exchange rates
C) The influence of political instability on capital flows
D) The impact of trade tariffs on currency exchange rates

 

Which of the following describes ‘capital account’ in a country’s balance of payments?

A) The part of the balance of payments that records all financial transactions, including foreign investments and loans
B) The account tracking the trade balance between imports and exports
C) The record of all short-term foreign exchange transactions
D) The account that tracks the flow of goods and services between countries

 

What is meant by the term ‘currency devaluation’?

A) A deliberate downward adjustment of a country’s currency value relative to others
B) A market-driven adjustment due to the relative strength of a nation’s economy
C) A reduction in the government’s foreign exchange reserves to stabilize the currency
D) A policy to increase domestic interest rates in an attempt to strengthen the currency

 

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

A) To provide financial assistance to countries facing balance of payments problems
B) To regulate the international stock markets
C) To provide loans for infrastructure development in emerging markets
D) To facilitate free trade between developed and developing countries

 

What does ‘currency speculation’ involve in the context of international finance?

A) The practice of purchasing currencies with the aim of profiting from future fluctuations in exchange rates
B) The trading of bonds issued by foreign governments to take advantage of interest rate differences
C) The purchase of foreign stocks to benefit from the economic growth of a particular region
D) The buying and selling of commodities like oil and gold based on predictions about currency values

 

What is the ‘global financial crisis’ of 2008 primarily attributed to?

A) The collapse of financial institutions, excessive risk-taking, and the housing market crash
B) The implementation of global trade tariffs and protectionist measures
C) The breakdown of the Bretton Woods system of exchange rates
D) The mass devaluation of emerging market currencies due to inflation

 

Which of the following best defines ‘current account balance’ in international finance?

A) A country’s balance of payments that includes exports, imports, and income from foreign investments
B) The account that tracks short-term capital flows and stock market activities
C) A balance sheet showing all assets and liabilities in foreign countries
D) A record of government expenditures on foreign economic aid and military programs

 

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

A) To promote free trade by regulating and facilitating international trade agreements
B) To stabilize the value of currencies by providing exchange rate mechanisms
C) To lend financial support to developing nations for economic reforms
D) To enforce monetary policies on behalf of the global banking system

 

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

A) The increasing interconnectedness of national economies and the growing interdependence of markets
B) The process of increasing government regulation of foreign investments
C) The practice of multinational corporations moving production to emerging markets
D) The effort to promote fair trade practices by developing countries

 

What is the main function of the ‘exchange rate’?

A) To determine the value of one currency in terms of another
B) To set the interest rates for loans and deposits in a particular country
C) To regulate the flow of international investments
D) To control the supply of money in a country’s economy

 

What is ‘international diversification’ in investment?

A) The strategy of investing in assets across different countries to reduce risk
B) The process of trading assets exclusively within a country to avoid exchange rate risk
C) The act of focusing investments on emerging markets for higher returns
D) The policy of central banks to hold multiple currencies in their reserves

 

What does ‘floating exchange rate system’ mean?

A) A system where the value of a currency is determined by market forces without government intervention
B) A system in which the value of a currency is fixed by the central bank to another currency
C) A mechanism for trading currencies based on a set list of fixed rates
D) A market where foreign exchange rates are regulated by an international governing body

 

What is meant by ‘capital mobility’ in international finance?

A) The ease with which capital or financial resources can move across borders
B) The process by which governments invest in domestic capital markets
C) The movement of foreign companies to invest in international markets
D) The ability of foreign companies to freely operate in local markets without restrictions

 

Which of the following is a risk associated with international investment?

A) Currency risk due to exchange rate fluctuations
B) Risk of interest rate changes in local economies
C) Inflation risk in the domestic market
D) Default risk in sovereign bonds

 

What is ‘the Heckscher-Ohlin theory’ in international trade?

A) A theory that suggests countries will export goods that require abundant factors of production they have in surplus
B) A theory that explains the impact of tariffs and trade barriers on international markets
C) A model for explaining the causes of currency fluctuations in the global economy
D) A framework for understanding the relationship between interest rates and inflation in different countries

 

What does the ‘triangle arbitrage’ strategy in forex markets involve?

A) A strategy of profiting from discrepancies in exchange rates between three currencies
B) A method to hedge currency risks using cross-currency derivatives
C) A strategy where traders exploit interest rate differences across countries
D) A process of adjusting a currency’s exchange rate to align with its purchasing power parity

 

What is the primary focus of the ‘Gold Standard’ system?

A) To stabilize the value of national currencies by tying them to a fixed amount of gold
B) To regulate global foreign exchange transactions
C) To provide loans to struggling economies in the form of gold reserves
D) To create a unified currency for international trade purposes

 

What is the primary goal of the ‘IMF’s Special Drawing Rights’ (SDRs)?

A) To provide liquidity to countries experiencing a balance of payments crisis
B) To stabilize a country’s currency by securing a fixed exchange rate
C) To facilitate debt repayment programs in developing countries
D) To enforce the capital controls of member countries

 

What is the ‘Taylor Rule’ in international finance?

A) A rule used by central banks to set interest rates based on inflation and economic output levels
B) A principle for determining the optimum exchange rate for a currency
C) A guideline for maintaining currency reserves based on national trade balances
D) A strategy for investing in foreign markets based on interest rate differentials

 

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

A) The risk that an asset cannot be quickly converted into cash without a significant loss in value
B) The risk of currency depreciation affecting an investor’s returns
C) The risk associated with sovereign debt defaults in foreign markets
D) The risk of sudden regulatory changes in foreign markets

 

 

What is ‘currency pegging’ in international finance?

A) A policy where a country’s currency value is fixed to the value of another currency or basket of currencies
B) A strategy where the central bank controls currency fluctuations through regular interventions
C) A system where currencies are allowed to float freely in the market
D) A method where the government uses its reserves to stabilize its currency value

 

Which of the following is the primary reason for capital flow in international finance?

A) To seek higher returns on investments due to differences in interest rates
B) To avoid trade restrictions imposed by different governments
C) To protect against inflation risks in home countries
D) To stabilize domestic currency values

 

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

A) A theory that suggests exchange rates between two currencies are in equilibrium when their purchasing power is the same in both countries
B) A model that predicts the impact of trade tariffs on currency fluctuations
C) A principle that explains how government fiscal policies influence exchange rates
D) A method for calculating the inflation rate based on changes in exchange rates

 

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

A) To provide loans for long-term development projects aimed at reducing poverty and promoting economic growth
B) To stabilize foreign exchange markets by intervening in currency trading
C) To regulate international trade by creating and enforcing trade agreements
D) To provide short-term loans for countries facing immediate fiscal crises

 

What is the ‘Arbitrage Pricing Theory’ (APT) in international finance?

A) A theory that explains the relationship between the prices of financial assets and the factors that influence them
B) A method used by governments to determine optimal exchange rates
C) A model used to predict inflation rates based on market expectations
D) A framework for understanding how capital flows affect international interest rates

 

What does ‘open market operations’ involve in monetary policy?

A) The central bank buying and selling government securities to control the money supply and influence interest rates
B) The process of reducing trade barriers to encourage international trade
C) The exchange of currencies between central banks to stabilize foreign exchange rates
D) The creation of international agreements to regulate cross-border financial transactions

 

Which of the following is an example of a ‘forward exchange contract’?

A) An agreement between two parties to buy or sell a currency at a future date at a predetermined exchange rate
B) A transaction in the spot market to exchange currencies immediately
C) A derivative contract based on the future price of commodities
D) A short-term loan agreement in foreign currency

 

What does ‘cross-border investment’ refer to?

A) The investment of capital in financial assets or businesses located in foreign countries
B) The transfer of assets between two countries to hedge against exchange rate risk
C) The process of managing the portfolio of assets in different currency zones
D) The practice of financing domestic firms using international capital markets

 

What is ‘sovereign risk’ in international finance?

A) The risk that a government will default on its debt or fail to meet its financial obligations
B) The risk that currency fluctuations will cause a loss in the value of international investments
C) The risk that political instability in a country will disrupt business operations
D) The risk of capital flight due to an economic downturn in a foreign country

 

What is the significance of ‘interest rate parity’ (IRP) in international finance?

A) It is a theory that suggests that the difference in interest rates between two countries will be offset by changes in the exchange rate between their currencies
B) It describes the equilibrium interest rates in international markets
C) It explains how central banks can control inflation through interest rate adjustments
D) It suggests that exchange rates will always reflect the purchasing power of currencies

 

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

A) The risk that political events, such as changes in government or policy, will impact the financial stability or profitability of investments
B) The risk associated with fluctuations in exchange rates due to political decisions
C) The risk that a country’s monetary policies will affect international trade relationships
D) The risk that global economic conditions will influence political decisions in foreign countries

 

What is the ‘Eurocurrency market’?

A) A market where currencies are traded outside of their home countries, often in offshore locations
B) A market for trading commodities denominated in euros
C) A market where European countries trade only their domestic currencies
D) A market for trading European Union bonds in foreign currencies

 

What is ‘hedging’ in international finance?

A) The strategy of taking a position in the financial markets to offset potential losses in another investment
B) The practice of increasing exposure to foreign currencies to benefit from favorable exchange rate movements
C) The act of diversifying investments across various countries to reduce political risk
D) The purchase of foreign stocks to capitalize on the economic growth of another country

 

What is meant by ‘foreign exchange risk’?

A) The risk that the value of an investment will be affected by fluctuations in exchange rates between currencies
B) The risk of investing in foreign markets due to political instability
C) The risk of high interest rates in foreign countries affecting capital investments
D) The risk associated with the default of a foreign government on its debt obligations

 

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

A) The value of a currency is pegged to another currency or a basket of currencies by the government or central bank
B) The exchange rate is determined purely by market forces without government intervention
C) Currencies are exchanged at floating rates based on supply and demand
D) The value of the currency is adjusted in real-time according to changes in trade balances

 

What is ‘exchange rate risk’?

A) The risk of potential loss due to changes in the value of a currency in foreign exchange markets
B) The risk that government policies will adversely affect currency markets
C) The risk that international trade agreements will influence the value of currencies
D) The risk that inflation will affect currency value in a given country

 

What is ‘currency substitution’?

A) The practice of using a foreign currency alongside or in place of a domestic currency for transactions
B) The strategy of diversifying foreign currency reserves to minimize risk
C) The act of pegging a national currency to a foreign currency to stabilize its value
D) The exchange of one foreign currency for another based on government regulations

 

What is ‘the Bretton Woods system’?

A) An international monetary system that established fixed exchange rates and created institutions like the IMF and World Bank
B) A global system of free-floating exchange rates without government interventions
C) A system where countries agreed to not devalue their currencies in response to economic crises
D) A policy used to regulate trade tariffs and resolve trade disputes between nations

 

What does ‘market efficiency’ refer to in international finance?

A) The ability of financial markets to reflect all available information in the prices of assets
B) The ability of governments to regulate markets to ensure stable exchange rates
C) The transparency of the currency market where central banks can adjust exchange rates easily
D) The ability of international banks to influence currency markets

 

What is the ‘J curve effect’ in international finance?

A) A phenomenon where a country’s trade balance worsens in the short term after a devaluation but improves over time
B) A model used to predict the future direction of interest rates
C) A strategy for managing inflation through government spending
D) A method of measuring the impact of political instability on currency values

 

 

What is the ‘globalization of financial markets’?

A) The process of integrating financial markets across borders, leading to a more interconnected global economy
B) The act of central banks controlling all global currency transactions
C) The exchange of foreign currencies in a government-regulated system
D) The trend of countries reducing tariffs and trade barriers on financial products

 

Which of the following is an example of a ‘capital flight’?

A) When investors move their capital from a country with unstable economic conditions to a more stable country
B) When multinational companies expand their operations to foreign markets
C) When countries issue more bonds to attract foreign investment
D) When central banks intervene in the foreign exchange market to stabilize the currency

 

What is ‘currency speculation’?

A) The practice of buying and selling currencies based on expected future movements in exchange rates
B) The investment in foreign bonds to take advantage of higher interest rates
C) The purchase of assets in foreign markets to hedge against exchange rate risk
D) The agreement to exchange currencies at a fixed future date for a specific price

 

Which of the following factors does NOT directly affect the value of a currency in the foreign exchange market?

A) Government fiscal policies
B) Foreign interest rates
C) Market speculation and investor sentiment
D) The price of domestic stocks

 

What does ‘trade balance’ refer to in international finance?

A) The difference between a country’s exports and imports of goods and services
B) The level of foreign investment in a country’s stock market
C) The net inflow of foreign currency reserves into a country
D) The amount of foreign debt held by a country

 

What is a ‘currency swap’?

A) A financial contract between two parties to exchange different currencies at specified times and rates
B) The purchase of foreign currencies for immediate delivery in the spot market
C) The use of a forward contract to hedge against exchange rate risk
D) The practice of selling one foreign currency to buy another in the open market

 

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

A) The risk that the failure of one financial institution could trigger a chain reaction affecting the entire financial system
B) The risk of a government defaulting on its foreign debt obligations
C) The risk of fluctuations in exchange rates affecting financial stability
D) The risk associated with sudden changes in commodity prices

 

What is the ‘difference between spot and forward exchange rates’?

A) Spot rates are for immediate transactions, while forward rates are for transactions set at a future date
B) Spot rates apply only to certain currencies, while forward rates are used for all currencies
C) Spot rates are determined by market speculation, while forward rates are fixed by central banks
D) Spot rates are used by governments, while forward rates are used by multinational corporations

 

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

A) The value of the currency is determined by supply and demand in the open market, without government intervention
B) The government sets a fixed exchange rate and intervenes to maintain it
C) The central bank constantly adjusts the money supply to stabilize the currency
D) Exchange rates are pegged to a basket of foreign currencies

 

What is ‘exchange rate forecasting’?

A) The prediction of future exchange rates based on economic indicators, market trends, and other factors
B) The process of setting exchange rates by government bodies
C) The adjustment of exchange rates by central banks to maintain price stability
D) The determination of the optimal currency for international trade

 

What is the ‘risk-return tradeoff’ in international investments?

A) The principle that investors must take on more risk to achieve higher potential returns
B) The idea that the risk of investing in international assets is generally lower than domestic investments
C) The concept that returns are guaranteed in international markets due to diversification
D) The strategy of avoiding risk to preserve capital in global investments

 

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

A) To provide financial assistance to countries in need of balance of payments support and to promote global economic stability
B) To regulate cross-border financial transactions and trade agreements
C) To set global interest rates and control international lending
D) To serve as a central bank for international currencies

 

What is ‘currency devaluation’?

A) A deliberate reduction in the value of a country’s currency relative to foreign currencies, often by the government
B) The natural depreciation of a currency due to inflation
C) A rapid rise in the value of a country’s currency, caused by a sudden influx of foreign investment
D) The reduction of interest rates by a country to increase the value of its currency

 

What is the ‘law of one price’ in international finance?

A) The principle that identical goods should sell for the same price when expressed in a common currency, excluding transport costs and taxes
B) The idea that exchange rates will always adjust to reflect the price of goods in different countries
C) The rule that exchange rates must be regulated by central banks to prevent unfair competition
D) The assumption that price differences in different markets are always due to currency fluctuations

 

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

A) A long-term investment made by a company or individual in a foreign country, usually by acquiring a controlling interest in a foreign business
B) The short-term purchase of foreign financial assets for immediate gain
C) The investment in foreign exchange markets to capitalize on currency fluctuations
D) The practice of lending money to foreign governments or corporations

 

What is the ‘lender of last resort’?

A) An institution, typically a central bank, that provides emergency funding to financial institutions in trouble to prevent systemic collapse
B) A government agency responsible for lending to foreign countries during financial crises
C) A bank that lends to individuals who are unable to secure credit from other financial institutions
D) An international fund that assists developing countries in financing development projects

 

What is the ‘carry trade’ in international finance?

A) A strategy in which an investor borrows money in a low-interest-rate currency and invests in a high-interest-rate currency to earn the interest rate differential
B) A technique used by corporations to hedge against currency fluctuations by holding foreign assets
C) A practice of borrowing in foreign currencies to finance domestic investments
D) A method used by governments to adjust interest rates to influence exchange rates

 

Which of the following is the primary determinant of a country’s exchange rate under a ‘floating exchange rate system’?

A) Supply and demand for the country’s currency in the foreign exchange market
B) Government-imposed tariffs and quotas on foreign goods
C) The level of foreign reserves held by the central bank
D) The fiscal deficit or surplus of the country

 

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

A) The possibility that changes in exchange rates could result in a loss when converting profits or assets into the home currency
B) The risk that a country will default on its foreign currency-denominated debt
C) The volatility of commodity prices in foreign markets
D) The danger that government interventions will distort currency prices

 

What is ‘currency intervention’?

A) The process by which a country’s central bank buys or sells foreign currencies to influence the exchange rate of its own currency
B) The policy of regulating cross-border capital flows to prevent capital flight
C) The imposition of restrictions on foreign exchange transactions to protect the domestic currency
D) The strategy of adjusting interest rates to stabilize the exchange rate

 

 

What is ‘political risk’ in international finance?

A) The risk that political changes or instability in a country could affect the value of investments
B) The risk associated with changes in government tax policies and regulatory frameworks
C) The risk of fluctuations in the global commodity markets impacting an economy
D) The risk of exchange rate movements impacting cross-border investments

 

Which of the following is a key feature of a ‘currency peg’?

A) A country’s central bank sets a fixed exchange rate for its currency against another currency or a basket of currencies
B) The central bank adjusts interest rates to control the value of the currency in foreign exchange markets
C) A government restricts the amount of foreign currency that can be bought or sold in the country
D) A currency is allowed to float freely based on market supply and demand

 

Which of the following is an example of ‘hedging foreign exchange risk’?

A) A company using forward contracts to lock in a future exchange rate for a foreign transaction
B) A company investing in foreign bonds to capitalize on higher interest rates
C) A government intervening in the foreign exchange market to stabilize the currency
D) A company diversifying its operations into multiple foreign countries to spread risk

 

What is ‘foreign exchange (forex) market’?

A) The market where currencies are traded and exchange rates are determined
B) The marketplace for trading stocks and bonds across national borders
C) The market for trading global commodities like gold and oil
D) The government-regulated platform for trading foreign debt securities

 

What does ‘interest rate parity’ suggest?

A) The difference between interest rates in two countries should be offset by the difference in their exchange rates over time
B) The exchange rate of a country will always remain stable in the long run, regardless of interest rate changes
C) Interest rates in different countries should always converge to a common rate
D) Higher interest rates always attract foreign investment, regardless of exchange rate fluctuations

 

What is the ‘balance of payments’?

A) A record of all economic transactions between the residents of a country and the rest of the world
B) A document showing a country’s stock of foreign currency reserves
C) A detailed list of the total foreign investment inflows into a country over a period
D) A measure of a country’s fiscal deficit or surplus

 

What is a ‘currency crisis’?

A) A situation in which a country experiences a rapid depreciation of its currency, often due to political instability or economic mismanagement
B) A period of sustained exchange rate stability in the foreign exchange markets
C) The devaluation of a country’s currency by its central bank to adjust for trade imbalances
D) The imposition of currency controls by a government to prevent capital flight

 

What is ‘arbitrage’ in international finance?

A) The practice of buying a currency or asset in one market and simultaneously selling it in another market at a higher price to profit from price differences
B) The process of adjusting exchange rates by central banks to stabilize the economy
C) The use of financial instruments to hedge against potential currency fluctuations
D) The strategy of investing in high-risk, high-reward foreign financial assets

 

What is ‘exchange rate manipulation’?

A) The act of a government or central bank artificially influencing the value of its currency to gain an economic advantage
B) The act of using foreign exchange reserves to stabilize a currency during a crisis
C) The process of allowing a currency to float freely based on market forces
D) The process of determining the most favorable exchange rates for international trade

 

What is ‘international diversification’?

A) The practice of spreading investments across multiple countries to reduce exposure to country-specific risks
B) The process of limiting investments to domestic markets to avoid foreign exchange risks
C) The method of investing in foreign currency markets to hedge against local market volatility
D) The strategy of concentrating investments in a specific foreign industry to take advantage of high returns

 

Which of the following best describes a ‘fixed exchange rate system’?

A) The exchange rate is set by the government or central bank and does not fluctuate based on market forces
B) The value of the currency fluctuates freely in response to market demand and supply
C) The currency is pegged to a specific set of commodities, such as gold or silver
D) The exchange rate is determined by international financial institutions, such as the IMF

 

What does ‘capital control’ refer to?

A) Government-imposed restrictions on the flow of capital across borders, such as limits on foreign investments or currency exchanges
B) The practice of borrowing foreign funds to finance a country’s public sector debt
C) The regulation of international financial markets by central banks
D) The control of government budgets to prevent excessive borrowing from foreign creditors

 

What is ‘currency appreciation’?

A) An increase in the value of a currency relative to other currencies, often due to higher demand or economic strength
B) A decrease in the value of a currency relative to other currencies
C) The government-mandated setting of exchange rates at a higher level
D) The practice of reducing interest rates to stimulate domestic currency value

 

Which of the following is a key feature of ‘multinational corporations’ (MNCs) in international finance?

A) They operate in multiple countries, and their financial decisions can be affected by exchange rates, tax policies, and foreign regulations
B) They only invest in domestic markets and are not affected by international financial conditions
C) They limit their foreign operations to currency trading and foreign exchange markets
D) They focus on managing government-controlled currencies rather than free market exchanges

 

What is ‘economic exposure’ in international finance?

A) The risk that a company’s financial performance will be affected by fluctuations in exchange rates
B) The risk that a country will default on its international debt obligations
C) The risk that inflation rates will affect the cost of production in foreign markets
D) The risk of political instability influencing trade relations between countries

 

What does ‘currency risk’ involve?

A) The potential for loss due to fluctuations in the value of a currency in international markets
B) The risk of a country’s central bank raising interest rates unexpectedly
C) The likelihood that the government will intervene to stabilize exchange rates
D) The risk that exchange rates will stabilize at unfavorable levels for international transactions

 

What is ‘exchange rate volatility’?

A) The degree to which the value of a currency fluctuates over time due to market forces or economic events
B) The process by which central banks intervene to stabilize a country’s currency
C) The ability of a country’s government to predict and control future exchange rates
D) The process of determining exchange rates through fixed government policies

 

What is ‘foreign exchange risk’ in multinational corporations?

A) The potential for a company’s profitability to be affected by fluctuations in currency exchange rates when doing business abroad
B) The risk of an increase in foreign taxes on profits from overseas operations
C) The risk associated with legal restrictions on capital flows between countries
D) The risk of investing in emerging markets with unstable economies

 

What does ‘international capital market’ refer to?

A) The global network of banks, institutions, and investors that facilitate the buying and selling of financial assets across borders
B) The government bonds market that facilitates the financing of foreign governments
C) The stock markets of major financial centers, such as New York, London, and Tokyo
D) The network of international trade agreements that impact financial flows

 

What is the ‘currency risk premium’?

A) The extra return an investor demands for taking on the risk of currency fluctuations in international investments
B) The cost of purchasing foreign currencies for trade
C) The difference in interest rates between countries
D) The premium paid for buying foreign currency options as a hedge against exchange rate movements

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