International Finance And Treasury — Part 2 MCQs with Explanations

Reliance is the first Indian company raised the fund by issuing Bond in US dollar in United States. It is first corporation in Asia to issue 50- and 100-year bonds in the United States.

Purchasing-power parity (PPP) refers to the concept that the same goods should sell for the same price across countries after exchange rates are taken into account. Purchasing power parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach.

A group of European countries have formed a union and created a common currency known as the Euro. The European Union (EU) is a group of 28 countries that operates as a cohesive economic and political block. Nineteen of the countries use the euro as their official currency.

The forward exchange rate is the rate today for exchanging one currency for another at a specific future date. Forward exchange rate is the exchange rate at which a party is willing to enter into a contract to receive or deliver a currency at some future date.

The spot exchange rate is the rate today for exchanging one currency for another for immediate delivery. The spot exchange rate is the amount one currency will trade for another today. In other words, it's the price a person would have to pay in one currency to buy another currency today. You could also think of it as today's rate that one currency can be traded with another.

The International Development Association of the World Bank Group deals with matters related to the development of the poorest countries in the world. The International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries. Overseen by 173 shareholder nations, IDA aims to reduce poverty by providing loans (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.

In India, the exchange rate system is managed floating (from 1994 onwards) and hence the relevant currency movements are appreciation and depreciation. Here, the exchange rate is determined in the open market through the pressure of buying and selling of foreign currencies.

The index of Financial Inclusion, Indian Council for Research on International Economic Relations (ICRIER) has been launched for the first time in 2008. The IFI developed here incorporates information on various dimensions of an inclusive financial system and it is easy to compute. This study is part of a major research project on “Financial Inclusion” under the auspices of the Financial Sector Research Programme (FSRP) at ICRIER.

Cash is a highly liquid asset followed by the banking accounts, checkable account, short-term promissory notes, treasury bills and other government bonds.

The price at which a market maker is prepared to buy a currency or borrow money is termed as bid rate. The bid rate is thus the rate at which the dealer is willing to buy the base currency and the ask rate is the one at which the dealer is willing to sell the base currency. The difference between the ask rate and the bid rate is called the bid-ask spread and is the profit of the dealer.

A deposit or borrowing domiciled outside the home country of the currency is called as euro currency. The euro is the common currency for 19 countries in the eurozone. The eurozone crisis almost ended it.

The system operated by the WTO is known as the multilateral trading system. MTS (Multilateral Trading System) The system which allows large numbers of countries to agree to trade with each other. The World Trade Organisation (WTO) is part of this system.

The price at which a market maker is prepared to sell a currency or lend money is offer rate. The offer price is the rate at which the market maker will sell the base currency to a customer/market user.

Bretton woods agreement arrived at in 01-07-94. The Bretton Woods Agreement was negotiated in July 1944 to establish a new international monetary system, the Bretton Woods System. The Agreement was developed by delegates from 44 countries at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire.

A contract that gives the buyer the right to buy commodity or a foreign currency from the seller at a fixed price is called as call option. Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period.

SIBOR refers to Singapore interbank offered rate. It is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market (or interbank market).

The market where long term securities (shares, bonds, etc. are bought and sold is called as secondary market. The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the "stock market," though stocks are also sold on the primary market when they are first issued.

A bank located usually in another country that provides service for another bank is Correspondent bank. A correspondent bank is a bank that provides services on behalf of another, equal or unequal, financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits, and gather documents on behalf of another financial institution.

The maximum amount that an Indian company can issue as ADR/GDR in a year is No monetary ceiling. The Monetary Ceiling is the maximum amount for which a Member can be held liable (ie. the cap) where a Court determines that the Member is compliant with all relevant obligations.

An operation in order to protect the domestic currency value of an asset or a liability that is denominated in foreign currency is called as Hedging. A risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.

Difference between buying and selling rates in an exchange rate or interest rate quotation is known as Spread. The spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity.

International Finance Corporation (IFC) was established in July 1956 as an affiliate of the World Bank to provide finance to the private sector. The World Bank grants loans to the governments of the member countries or provides loan capital to the private enterprises on the guarantee of the member governments.

Purchasing power parity theory focuses on the inflation exchange rate relationship. It states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Closing exchange rate is the rate prevailing at a financial reporting date. It is the exchange rate for two currencies at the end of a period of time, such as a trading day or month.

The bank account of a non-resident of a country, where the amount of currency in the account cannot be transferred to another country is called as Blocked Account. A blocked account can be an account that is subject to foreign exchange controls in a country that restricts the amount of its currency that can be transferred to other countries or exchanged into other currencies.

Exchange rate between currency A and currency B, given the values of currencies A and B with respect to a third currency is known as Cross exchange rate. A cross rate is the currency exchange rate between two currencies when neither are the official currencies of the country in which the exchange rate quote is given.

Agreement to exchange one currency for another at a specified exchange rate and date is Currency swap. A currency swap is an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency. At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.

Long-term securities denominated in two currencies is called as Dual currency bonds. A dual currency bond is a synthetic security that is redeemed in one currency while interest payments over the life of the bond are made in another currency. For example, a bond issued in U.S. dollars which pays interest in euros will be considered a dual currency bond.

Foreign exchange transactions involve monetary transactions between residents of two or more countries. The Foreign Exchange Transactions refers to the sale and purchase of foreign currencies. Simply, the foreign exchange transaction is an agreement of exchange of currencies of one country for another at an agreed exchange rate on a definite date.

Syndication of loans is done in Eurocredit market. It is the market where financial banking institutions provide banking services denominated in foreign currencies. They may accept deposits and provide loans.

The Bretton Woods System called for fixed exchange rates against the US Dollar. The Bretton Woods agreement was created in a 1944 conference of all of the World War II Allied nations.

The number of nostro accounts that can be maintained by a bank in a particular currency is no such limit. Nostro account is maintained by Indian banks in foreign countries where they have operations for facilitating easy clearing of their transactions. These accounts are maintained with their correspondent banks overseas who in turn act as their clearing bank in the foreign country where the Indian bank has its base.

Non-resident bank accounts are maintained in Indian rupee. Non-Resident bank accounts are those, which are maintained by Indian nationals and Persons of Indian origin resident abroad, foreign nationals and foreign companies in India. Bank branches can open ordinary non-resident accounts in the names of private individuals provided initial deposits for opening the accounts are received from abroad in an approved manner or the initial amount is tendered in foreign currency while on a visit to India or transfer of funds from the existing non-resident account of the same person.

Full fledged money changers are authorized to undertake purchase and sale of foreign currency notes, coins and travellers cheques. The Full Fledged Money Changers are liable to carry on the following activities: FFMCs can go into franchise agreement at their convenience for undertaking the Restricted Money Changing business which comprises the conversion of coins or traveler's cheques, foreign currency notes into (INR) Indian Rupees.

According to classification by IMF, the currency system of India falls under managed floating. Managed float regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies to maintain a certain range.

Under fixed exchange rate system, fall in the value of domestic currency due to deficit in balance of payments resulted in no change in the exchange rate normally. A fixed exchange rate is a regime applied by a government or central bank ties the country's currency official exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.

Under the original scheme IMF, a member country had to obtain the permission of IMF for any devaluation of its currency. The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the IMF had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.

At present the role of IMF in the exchange rate policies of its members is to have surveillance and express opinion on policies. The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Pegging is controlling a country's currency rate by tying it to another country's currency or steering an asset's price prior to option expiration. Pegging the value of a currency can be done by pegging to a major currency or pegging to a basket of currencies or pegging to SDR.

Convertibility of a currency is indicated by its conversion at market rate without any quantitative restriction by government. Currency convertibility is important for international commerce as globally sourced goods must be paid for in an agreed upon currency that may not be the buyer's domestic currency.