M.

Com COC 4A2: DERIVATIVES MARKET

MCQ- 4 - CURRENCY FORWARDS/FUTURES - III

1. Consider the following rates

Rs./$ Spot 48.40/45
1 month 25/20
2 months 30/25
3 months 40/35
If an Indian exporter seeks to have an option of delivering dollar over third month,
then the bank will quote

a. Rs.48.00/$ b. Rs.48.10/$ c. Rs.48.15/$ d. Rs.48.70/$

2. If £/Euro is 0.6338/40 and $/£ 1.5265/67, the synthetic Euro/$ bid rate is

a. Euro 1.0331/$ b. Euro 1.0333/$ c. Euro 1.0335/$ d. Euro 1.0336/$

3.

4. The following are the exchange rates quoted in Singapore S$/Euro : 2.0118/21
S$/US$ : 1.7384/86 The synthetic rates of US $/Euro are

a. 1.1572/73 (b) 1.1571/74 (c) 0.8640/41 (d) 0.8639/42

5. If the Euro is quoted $ 1.1410 today and the inflation rates are 2% in Euro-zone and
3% in USA, what should be the $/Euro quote after 3 months?

(a) $ 1.1382/Euro (b) $ 1.1438/Euro (c) $ 1.1522/Euro (d) $ 1.1300/Euro

6. The pound sterling quote of a bank is Rs.81.79 / 84. If the banker agrees to quote a
better rate by 2 paise to an Exporter, who is selling £200000, the rate quoted is

a. Rs.81.77 (b) Rs.81.86 (c) Rs.81.81 (d) Rs.81.83

7. A banker who relied on the interbank rate of Rs./$ 43.06/10 is requested by an
Exporter for purchase of dollars. What is the rate to be quoted if the banker wants a
margin of 0.10%?
a. Rs.43.14 (b) Rs.43.02 (c) Rs.43.10 (d) Rs.43.06

8. The relationship between the exchange rate and the prices of tradeable goods is
known as the

a. PPP theory (b) IRP theory (c) Portfolio theory (d) None

9. If U.K. interest rates are higher than Japanese interest rates, the theory of covered
interest arbitrage would suggest that in the £/Yen exchange markets the Yen would
be at a forward _________ and the pound would ___________.

(a) Discount, be at a forward premium (b) Discount, also be at a forward discount

(c) Premium, also be at a forward premium (d) Premium, be at a forward discount

10. If interest rate parity holds and the transaction costs are zero, covered foreign
financing will result in an effective borrowing rate that is

(a) Less than domestic interest rate (b) Greater than domestic interest rate

(c) Equal to domestic interest rate (d) Negative.

11. The following are the exchange rates quoted in Singapore

S$/Euro : 2.0118/21
S$/US$ : 1.7384/86
The synthetic rates of US $/Euro are

a) 1.1572/73 (b) 1.1571/74 (c) 0.8640/41 (d) 0.8639/42

12. If U.K. interest rates are higher than Japanese interest rates, the theory of covered
interest arbitrage would suggest that in the £/Yen exchange markets the Yen would
be at a forward _________ and the pound would ___________.
a. Discount, be at a forward premium
b. Discount, also be at a forward discount
c. Premium, also be at a forward premium
d. Premium, be at a forward discount
13. If a speculator observes that the current 90-day forward rate on Danish Kroner is
$0.20/DKr but he expects that the spot rate in 90 days will be $ 0.30 = DKr 1, then
this speculator would now
a. Buy dollars in the forward market
b. Buy Danish kroners in the forward market
c. Sell Danish kroners in the forward market
d. Buy Danish kroners on the spot market and simultaneously sell Danish kroners
on the 90 – day forward market if the current spot rate is $ 0.25 = DKr 1
14. The relationship between the spot and forward exchange rates between a pair of
currencies is brought about principally through

a. The Fisher effect

b. Purchasing power parity
c. Covered interest rate arbitrage
d. The law of one price.
15. Consider the following:

$/₤ 1.6435/40

1 month 1 0/5

2 months 5/10

3 months 10/15

Which of the following statements is correct?

a. 1 month forward bid rate is 1.6445

b. 2 month forward ask rate is 1.6430
c. 2 month forward bid rate is 1.6430
d. 3 month forward ask rate is 1.6455.

16. Vijay purchased a draft for £500 from his banker to import books when the pound
was quoted at Rs.78.25/30. Since he could not import the books, he surrendered the
draft to his banker when the pound was quoted at Rs.78.35/40. For Vijay, this
transaction resulted in
a. A profit of Rs.25
b. A profit of Rs.50
c. A profit of Rs.75
d. A loss of Rs.25

17. Consider the following information:

One year U.S. interest rate is 4% (Compounded Quarterly) One year interest rate in
Mumbai is 5% (Compounded Quarterly) The six months forward rate for dollar is
Rs.46.00 What is the spot rate that creates interest rate parity?

a. Rs.46.23
b. Rs.46.32
c. Rs.45.66
d. Rs.45.77
18. The eurodollar interest rates in London are as under

1 month 3.00% p.a.

2 months 3.60% p.a.
3 months 4.00% p.a.
The one month interest rate after 2 months is expected to be
 (a) 4.44% p.a. (b) 4.55% p.a. (c) 4.66% p.a. (d) 4.77% p.a.

19. An Indian exporter is expected to receive € 1,000,000 during the 3rdmonth. He

obtained the following market quotation

Spot Rs./€ = 55.32/35

Forward 1 month 02/03

2 month 03/04

3 month 04/05

The rate likely to be offered to the exporter is (ignore bank’s margin)

(a) Rs.59.36

(b) Rs.55.35

(c) Rs.55.39

(d) Rs.55.38

20. If
Rs./$ is 48.90/95 and
Rs./£ is 70.80/85,
then implied $/£ quote would be

(a) 0.6907/0.6909 (b) 0.6913/0.6918 (c) 1.4474/1.4479 (d) 1.4464/1.4489