Sample Questions and Answers
What is the ‘Gold Standard’ in the context of international monetary systems?
A) A system where currencies are directly linked to a specific amount of gold
B) The regulation of gold reserves to control currency exchange rates
C) The method by which governments guarantee the value of foreign currencies
D) A monetary policy that focuses on gold trading as the primary basis for global transactions
Answer: A
What is ‘currency hedging’?
A) The use of financial instruments such as futures, options, or swaps to protect against potential losses from currency fluctuations
B) The strategy of holding a large reserve of foreign currency to minimize risks
C) A method of shifting profits between subsidiaries in different countries to avoid exchange rate risks
D) The practice of investing in foreign government bonds to secure stable currency returns
Answer: A
What does the term ‘trade deficit’ mean?
A) A situation where a country imports more goods and services than it exports
B) A balance between the total imports and exports of a country
C) A surplus of exports over imports in international trade
D) A reduction in the value of a country’s currency due to an increase in exports
Answer: A
What is ‘import financing’?
A) The method of securing funds or credit to pay for goods and services imported from other countries
B) The process of using subsidies to encourage domestic companies to purchase imports
C) The financial assistance given by governments to reduce the cost of imports
D) The method of securing foreign exchange reserves to stabilize import prices
Answer: A
What is ‘export credit insurance’?
A) A type of insurance that protects exporters against the risk of non-payment or default by foreign buyers
B) A policy that ensures safe shipment of exported goods
C) Insurance that covers the cost of transportation for international exports
D) A guarantee provided by governments for the successful delivery of exports
Answer: A
What is the primary goal of the World Trade Organization (WTO)?
A) To facilitate the negotiation of trade agreements and settle disputes between member countries
B) To impose trade tariffs on all international imports
C) To provide foreign exchange services to member nations
D) To control the supply of global goods and services
Answer: A
Which of the following is the most commonly used financial instrument in international trade to reduce payment risks?
A) Letter of credit
B) Export subsidy
C) Currency swap
D) Forward contract
Answer: A
What is a ‘foreign exchange swap’?
A) A contract where two parties agree to exchange currencies for a specified time period and then reverse the exchange at a later date
B) A type of trade agreement to exchange goods between countries without any currency exchange
C) A financial instrument that eliminates the risk of foreign exchange fluctuations
D) A contract to borrow funds in foreign currency for a short period of time
Answer: A
What does the term ‘capital account’ refer to in the balance of payments?
A) A record of the net flow of capital into and out of a country, including foreign direct investment and portfolio investments
B) A part of the balance of payments that tracks the imports and exports of goods and services
C) The financial record of foreign exchange reserves
D) A measure of a country’s government debt and liabilities to foreign countries
Answer: A
What is ‘currency speculation’?
A) The act of buying and selling currencies based on expected future changes in exchange rates to make a profit
B) The decision to hold foreign currency reserves in anticipation of increased trade demand
C) The process of exchanging currencies for settling international transactions
D) The practice of stabilizing exchange rates by buying and selling government bonds
Answer: A
What is the ‘currency peg’ system?
A) A system where a country’s currency is fixed or tied to the value of another currency, often the U.S. dollar
B) A system that allows a country’s currency to fluctuate freely in the market
C) A method of determining exchange rates based on inflation differences
D) A system where the government regulates the demand for foreign currencies
Answer: A
Which of the following is a characteristic of a ‘floating exchange rate system’?
A) The exchange rate is determined by market forces of supply and demand
B) The government sets the exchange rate through centralized control
C) A fixed amount of currency is exchanged for another, regulated by the central bank
D) The exchange rate is determined by trade negotiations between governments
Answer: A
In the context of international finance, what is ‘transfer pricing’?
A) The method by which multinational corporations set prices for goods and services sold between their subsidiaries across different countries
B) A strategy to price foreign exchange transactions based on supply and demand
C) A regulatory mechanism to prevent capital flight between countries
D) The pricing of tariffs and duties on imported goods
Answer: A
What does the ‘political risk premium’ refer to in international finance?
A) The additional return required by investors to compensate for the risks associated with political instability or government actions in a foreign country
B) The fee charged for insurance against political risks
C) The cost of maintaining a stable political environment for foreign investors
D) The interest rate added to loans taken out by countries with high political risk
Answer: A
What is the main purpose of an ‘hedging strategy’ in international finance?
A) To reduce potential losses from unfavorable movements in exchange rates or other financial variables
B) To increase the exposure to risk for better returns
C) To engage in speculation for profit
D) To lock in long-term interest rates on government bonds
Answer: A
In the foreign exchange market, what is the ‘bid price’?
A) The price at which a buyer is willing to purchase a currency
B) The price at which a seller is willing to sell a currency
C) The current value of a currency relative to others
D) The price of a currency when traded on the black market
Answer: A
What is ‘economic exposure’ in terms of foreign exchange risk?
A) The impact of currency fluctuations on a company’s future cash flows, market value, and profitability
B) The potential for short-term losses in currency trading
C) The level of government intervention in exchange rate markets
D) The risk of exchange rate fluctuations on short-term international trade contracts
Answer: A
What is a ‘swap contract’ in the context of foreign exchange?
A) A contract where two parties agree to exchange currencies at specific terms and then reverse the exchange at a later date
B) A contract to exchange goods between two countries at a fixed price
C) An agreement to exchange future trade credits
D) A financial instrument used to settle international debts between countries
Answer: A
What does ‘trade liberalization’ involve?
A) Reducing trade barriers such as tariffs and quotas to encourage free international trade
B) Increasing trade restrictions to protect domestic industries
C) Setting maximum limits on the importation of goods from certain countries
D) Imposing higher taxes on imported goods to boost local production
Answer: A
What is the main risk associated with ‘political risk’ in international trade?
A) The possibility of losing money due to changes in government policies, political instability, or expropriation
B) The risk of losing a market due to economic downturns in the home country
C) The risk of trade restrictions or tariffs being imposed on exported goods
D) The possibility of not being able to obtain financing for international projects
Answer: A
What is ‘arbitrage’ in the context of international finance?
A) The practice of taking advantage of price differences in different markets by buying low in one market and selling high in another
B) The process of hedging against exchange rate fluctuations using futures contracts
C) The evaluation of long-term financial stability in a foreign investment
D) The use of foreign exchange swaps to minimize currency exposure
Answer: A
What does ‘open account’ payment mean in international trade?
A) A payment method where goods are shipped before payment is made, with the expectation of payment within a specified time period
B) A method of advance payment where the buyer pays before the shipment of goods
C) A financing option where a third-party intermediary pays for the goods on behalf of the buyer
D) A letter of credit issued by a financial institution to secure payment
Answer: A
Reviews
There are no reviews yet.