CAIIB BFM Module A Unit 1 MCQ

CAIIB BFM Module A Unit 1 MCQ

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CAIIB BFM Module A Unit 1 MCQ. These 100 Multiple Choice Questions (MCQ) covers key topics of CAIIB BFM Unit 1 – Introduction to Foreign Exchange (MCQs 1 to 10), Factors Influencing Exchange Rates (MCQs 11 to 25), Exchange Rate Mechanisms and Calculations (MCQs 26 to 45), Foreign Exchange Dealing Room Operations (MCQs 46 to 65), Derivative Products in Foreign Exchange (MCQs 66 to 80), Foreign Exchange Arithmetic and Numerical Applications (MCQs 81 to 100) and Foreign Exchange Arithmetic – Numerical (MCQs 101 to 120).

Introduction to Foreign Exchange (MCQs 1 to 10): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 1: What does FOREX facilitate?

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Correct Answer: D. International trade, investments, and travel

Question 2: What is the primary reason for the existence of FOREX?

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Correct Answer: B. Cross-border transactions

Question 3: Which act defines Foreign Exchange in India?

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Correct Answer: C. Foreign Exchange Management Act (FEMA), 1999

Question 4: According to FEMA, 1999, which of the following is included in the definition of foreign exchange?

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Correct Answer: C. Balances payable in foreign currency

Question 5: FOREX includes instruments payable in:

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Correct Answer: C. Either Indian or foreign currency, or both

Question 6: Which entities act as the primary market makers in the FOREX market?

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Correct Answer: B. Commercial Banks

Question 7: What is the role of Central Banks in the FOREX market?

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Correct Answer: B. To manage reserves and stabilize currency

Question 8: Which of the following participants use FOREX for trade, investment, and speculation?

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Correct Answer: C. Corporations

Market Size and Characteristics

Question 9: The global daily turnover in the FOREX market is approximately (as of 2020):

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Correct Answer: B. USD 6.6 trillion

Question 10: Which of the following best describes the operating hours of the FOREX market?

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Correct Answer: B. 24 hours a day, five days a week

CAIIB BFM Module A Unit 1 MCQ

Factors Influencing Exchange Rates (MCQs 11 to 25): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 11: Which of the following is a fundamental factor influencing exchange rates?

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Correct Answer: C. Balance of Payments

Question 12: A country with a consistently high economic growth rate is likely to see its currency:

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Correct Answer: D. Appreciate

Question 13: Expansionary fiscal policies, like lower taxes, generally lead to:

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Correct Answer: B. Higher economic growth

Question 14: How do high domestic interest rates typically affect a currency’s value in the short term?

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Correct Answer: C. They cause appreciation.

Question 15: Political stability generally leads to:

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Correct Answer: C. A stronger currency

Question 16: Which of the following is a technical factor that influences exchange rates?

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Correct Answer: C. Government Controls

Question 17: The South East Asian Currency Crisis of 1997 demonstrated the impact of which factor on exchange rates?

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Correct Answer: C. Restrictions or freedom in capital movement

Question 18: Speculation in the FOREX market can:

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Correct Answer: C. Provide liquidity but also create instability

Question 19: Capital tends to flow from:

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Correct Answer: B. Lower-yielding to higher-yielding currencies.

Question 20: What is the mnemonic for Fundamental Reasons determining exchange rates?

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Correct Answer: B. BEFGIPS

Question 21: Exchange rates of major currencies typically fluctuate every:

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Correct Answer: A. 3-4 seconds

Question 22: Major currencies have around _____ exchange rate changes in a day.

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Correct Answer: C. 21,600

Question 23: FOREX markets are affected by:

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Correct Answer: A. Government policies.

Question 24: A large part of total global FOREX turnover is from:

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Correct Answer: A. Global commodities trade.

Question 25: FOREX markets are:

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Correct Answer: A. Dynamic.

Exchange Rate Mechanisms and Calculations (MCQs 26 to 45): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 26: What is a “spot transaction” in the FOREX market?

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Correct Answer: B. An immediate exchange of currencies at the current market rate

Question 27: What is a “forward transaction”?

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Correct Answer: B. An agreement to exchange currencies at a future date and a predetermined rate

Question 28: If the forward value of a currency is higher than its spot value, it is said to be at a:

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Correct Answer: B. Premium

Question 29: A direct quote represents:

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Correct Answer: B. The amount of domestic currency needed to buy one unit of foreign currency

Question 30: What is a “cross rate”?

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Correct Answer: B. The exchange rate between two currencies, derived from their rates against a third currency

Question 31: In a floating exchange rate system, exchange rates are determined by:

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Correct Answer: B. Market forces like supply and demand

Question 32: The “bid rate” is the rate at which:

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Correct Answer: B. A bank is willing to buy a currency

Question 33: What is the settlement timeframe for a “ready/cash” transaction?

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Correct Answer: A. Same day

Question 34: What is the settlement timeframe for a “Tom” transaction?

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Correct Answer: B. Next day

Question 35: What is the settlement timeframe for a “Spot” transaction?

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Correct Answer: C. Second day

Question 36: What is the settlement timeframe for a “forward” transaction?

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Correct Answer: D. Beyond spot date

Question 37: Which currencies are typically quoted indirectly against the USD?

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Correct Answer: B. GBP, EUR, AUD, NZD

Question 38: In the quote USD/INR 74.9500/9600, what is the offer rate?

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Correct Answer: B. 74.9600

Question 39: What is the “value date” in a foreign exchange transaction?

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Correct Answer: B. The date on which the exchange of currencies occurs

Question 40: What is “arbitrage” in the FOREX market?

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Correct Answer: A. Simultaneous buying and selling of a currency in different markets to profit from price discrepancies

Question 41: What does a ‘premium’ in forward rates signify?

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Correct Answer: C. Home currency’s forward value is higher than spot value.

Question 42: In direct quotes, the _____ currency is variable.

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Correct Answer: B. home

Question 43: In indirect quotes, the _____ currency is fixed.

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Correct Answer: B. home

Question 44: When direct quotes for a currency pair are unavailable, we use:

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Correct Answer: C. Cross Rates

Question 45: The world economies adopted a floating exchange rate system in:

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Correct Answer: B. 1973

Foreign Exchange Dealing Room Operations (MCQs 46 to 65): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 46: What is the primary function of a FOREX dealing room?

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Correct Answer: B. To facilitate foreign currency transactions and manage foreign exchange risk

Question 47: Which part of the dealing room is responsible for managing transactions, positions, and client relationships?

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Correct Answer: A. Front Office

Question 48: Which part of the dealing room is responsible for processing transactions and managing settlements?

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Correct Answer: C. Back Office

Question 49: What is an “integrated treasury”?

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Correct Answer: B. A treasury that combines foreign exchange and domestic currency operations

Question 50: Which of the following is a function of an integrated treasury?

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Correct Answer: C. Asset-Liability Management (ALM)

Question 51: Dealing rooms must adhere to guidelines issued by which organization in India?

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Correct Answer: B. Reserve Bank of India (RBI)

Question 52: Which type of risk arises from fluctuations in exchange rates?

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Correct Answer: C. Exchange Risk

Question 53: What is “Herstatt Risk”?

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Correct Answer: B. The risk of counterparty default after delivering one currency but before receiving the other

Question 54: What is “NOSTRO” account?

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Correct Answer: A. A bank’s account held in a foreign currency at another bank

Question 55: What does “FEDAI” stand for?

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Correct Answer: B. Foreign Exchange Dealers’ Association of India

Question 56: What is the primary role of the ‘Mid Office’ in a dealing room?

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Correct Answer: C. Risk Management

Question 57: Integrated treasury combines the management of:

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Correct Answer: B. Foreign exchange and domestic currency operations.

Question 58: Which of the following is NOT a reason for integrating treasury operations?

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Correct Answer: C. Maintaining separate risk management systems

Question 59: NOOPL stands for:

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Correct Answer: A. Net Overnight Open Position Limits.

Question 60: IGL stands for:

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Correct Answer: B. Individual Gap Limits.

Question 61: A VOSTRO account is held by:

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Correct Answer: B. A foreign bank in Indian Rupees.

Question 62: Mirror Accounts are maintained by:

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Correct Answer: C. Correspondent Banks

Question 63: What is Gap Risk also known as?

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Correct Answer: C. Interest Rate Risk

Question 64: Herstatt Risk arose due to the failure of which bank?

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Correct Answer: C. Bankhaus Herstatt

Question 65: In which year did the Herstatt Risk arise?

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Correct Answer: B. 1974

Derivative Products in Foreign Exchange (MCQs 66 to 80): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 66: What is a “derivative” in finance?

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Correct Answer: B. A financial instrument that derives its value from an underlying asset

Question 67: Which of the following is NOT a type of derivative?

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Correct Answer: D. Bonds

Question 68: Which type of derivative is a customized agreement traded over-the-counter (OTC)?

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Correct Answer: B. Forward Contract

Question 69: Which type of derivative is standardized and traded on an exchange?

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Correct Answer: B. Futures Contract

Question 70: What gives the buyer the right, but not the obligation, to buy or sell an asset?

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Correct Answer: C. Option

Question 71: Which type of option can be exercised only on the expiration date?

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Correct Answer: B. European Option

Question 72: An option is “in the money” (ITM) if:

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Correct Answer: B. It would be profitable to exercise it immediately

Question 73: What is an agreement between two parties to exchange a series of cash flows over time?

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Correct Answer: D. Swap

Question 74: Which benchmark interest rate is commonly used in derivative contracts?

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Correct Answer: B. SOFR

Question 75: What is the purpose of ‘Hedging’ using derivatives?

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Correct Answer: B. To reduce risk

Question 76: What does ‘OTC’ stand for in the context of derivatives trading?

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Correct Answer: B. Over-the-Counter

Question 77: IMM stands for:

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Correct Answer: B. International Monetary Market

Question 78: CCS stands for:

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Correct Answer: B. Currency Coupon Swaps

Question 79: Currency Coupon Swaps (CCS) are used to hedge which risks simultaneously?

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Correct Answer: C. Principal, coupon, and interest rate risks.

Question 80: Which type of option is used to hedge exports?

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Correct Answer: B. Put Option

Foreign Exchange Arithmetic and Numerical Applications (MCQs 81 to 100): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 81: From a bank’s perspective, a purchase transaction involves:

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Correct Answer: B. Converting foreign currency to home currency

Question 82: What rate does a bank apply for inward remittances received through Nostro accounts?

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Correct Answer: C. TT Buying Rate

Question 83: When calculating customer rates, banks add a margin to the interbank rate for:

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Correct Answer: B. Outward remittances

Question 84: The forward premium or discount is the difference between the:

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Correct Answer: B. Spot rate and the forward rate

Question 85: Which of the following is used to calculate an exchange rate through the medium of another currency?

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Correct Answer: C. Chain Rule

Question 86: The Forward Rate is calculated as:

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Correct Answer: B. Spot Rate + Premium (or – Discount)

Question 87: When canceling a forward contract, the bank will:

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Correct Answer: B. Apply the opposite TT rate with the current market rate and margin.

Question 88: The bank buys foreign currency at the _____ rate.

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Correct Answer: B. Bid

Question 89: The bank sells foreign currency at the _____ rate.

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Correct Answer: A. Ask

Question 90: Inward remittance means ______ for the country.

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Correct Answer: B. Inflow

Question 91: Outward remittance means ______ for the country.

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Correct Answer: A. Outflow

Question 92: For Inward Remittance, the bank’s margin is ______ from the interbank rate.

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Correct Answer: B. Deducted

Question 93: For Outward Remittance, the bank’s margin is _____ to the interbank rate.

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Correct Answer: A. Added

Question 94: If the interbank spot buying rate is 75.00 and the bank’s margin is 0.10, what’s the customer rate for an inward remittance?

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Correct Answer: A. 74.90

Question 95: If the interbank spot selling rate is 75.00 and the bank’s margin is 0.10, what is the customer rate for an outward remittance?

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Correct Answer: B. 75.10

Question 96: The formula for calculating interest on bills in India (typically) uses how many days in a year?

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Correct Answer: B. 365

Question 97: As per FEDAI guidelines, final exchange rates are typically rounded off to the nearest:

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Correct Answer: C. 0.25 paise

Question 98: Rupee amounts are typically rounded off to the nearest:

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Correct Answer: C. Whole number

Question 99: For a Forward Purchase contract, the bank’s margin is:

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Correct Answer: B. Deducted from the forward rate.

Question 100: For a Forward Sale contract, the bank’s margin is:

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Correct Answer: A. Added to the forward rate.

Foreign Exchange Arithmetic – Numerical (MCQs 101 to 120): CAIIB BFM Module A Unit 1 MCQ : Exchange Rates and Forex Business

Question 101: The interbank spot USD/INR rate is 74.50/74.52. If the bank’s margin for an inward remittance is 0.10%, what is the TT Buying Rate?

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Correct Answer: A. 74.4255 Calculation: Interbank Buying Rate = 74.50 Margin = 0.10% of 74.50 = (0.10/100) * 74.50 = 0.0745 TT Buying Rate = Interbank Buying Rate – Margin = 74.50 – 0.0745 = 74.4255

Question 102: The interbank spot USD/INR rate is 76.20/76.22. If the bank’s margin for an outward remittance is 0.15%, what is the TT Selling Rate?

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Correct Answer: A. 76.3343 Calculation: Interbank Selling Rate = 76.22 Margin = 0.15% of 76.22 = (0.15/100) * 76.22 = 0.1143 TT Selling Rate = Interbank Selling Rate + Margin = 76.22 + 0.1143 = 76.3343

Question 103: An exporter submits a bill for USD 10,000. The spot USD/INR rate is 75.80/75.82. The bank’s margin is 0.12%. What is the bill buying rate (rounded to nearest 0.25 paise)?

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Correct Answer: C. 75.7100 Calculation: Interbank Buying Rate = 75.80 Margin = 0.12% of 75.80 = (0.12/100) * 75.80 = 0.09096 Bill Buying Rate = Interbank Buying Rate – Margin = 75.80 – 0.09096 = 75.70904 Rounded to nearest 0.25 paise = 75.7100

Question 104: An importer needs to remit USD 25,000. The spot USD/INR rate is 77.10/77.12. The bank’s margin is 0.18%. What is the bill selling rate (rounded to nearest 0.25 paise)?

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Correct Answer: B. 77.2600 Calculation: Interbank Selling Rate = 77.12 Margin = 0.18% of 77.12 = (0.18/100) * 77.12 = 0.138816 Bill Selling Rate = Interbank Selling Rate + Margin = 77.12 + 0.138816 = 77.258816 Rounded to nearest 0.25 paise = 77.2600

Question 105: Spot USD/INR is 74.80/74.82. The 3-month forward premium is 0.45/0.47. What is the 3-month forward buying rate, ignoring margins?

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Correct Answer: A. 75.25 Calculation: Spot Buying Rate = 74.80 3-Month Forward Premium (Buying) = 0.45 Forward Buying Rate = Spot Buying Rate + Forward Premium = 74.80 + 0.45 = 75.25

Question 106: Spot USD/INR is 76.50/76.52. The 6-month forward premium is 0.90/0.92. What is the 6-month forward selling rate, ignoring margins?

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Correct Answer: A. 77.42 Calculation: Spot Selling Rate = 76.52 6-Month Forward Premium (Selling) = 0.92 Forward Selling Rate = Spot Selling Rate + Forward Premium = 76.52 + 0.92 = 77.42

Question 107: Spot USD/INR is 75.00/75.02.  A customer wants to book a forward purchase contract for USD 50,000 for delivery in 2 months. The 2-month forward premium is 0.30/0.32. The bank’s margin is 0.10%. What is the forward purchase rate (rounded to nearest 0.25 paise)?

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Correct Answer: B. 75.2225 Calculation: Spot Buying Rate = 75.00 2-Month Forward Premium = 0.30 Interbank Forward Buying Rate = 75.00 + 0.30 = 75.30 Margin = 0.10% of 75.00 = (0.10 / 100) * 75.00 = 0.075 Forward Purchase Rate = Interbank Forward Buying Rate – Margin = 75.30 – 0.075 = 75.2250 Rounded =75.2225

Question 108: Spot USD/INR is 77.00/77.02. A customer wants to book a forward sale contract for USD 100,000 for delivery in 1 month. The 1-month forward premium is 0.20/0.22. The bank’s margin is 0.15%. What is the forward sale rate (rounded to nearest 0.25 paise)?

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Correct Answer: B. 77.3875 Calculation: Spot Selling Rate = 77.02 1-Month Forward Premium = 0.22 Interbank Forward Selling Rate = 77.02 + 0.22 = 77.24 Margin = 0.15% of 77.02 = (0.15 / 100) * 77.02 = 0.11553 Forward Sale Rate = Interbank Forward Selling Rate + Margin = 77.24 + 0.11553 = 77.35553 Rounded = 77.3875

Question 109: A forward purchase contract for USD 20,000 was booked at 74.90. On the due date, the customer requests cancellation. The spot rate on the date of cancellation is 75.20/75.22. The bank’s margin for TT selling is 0.20%. What is the cancellation rate?

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Correct Answer: A. 75.3704 Calculation: Interbank Selling Rate = 75.22 Margin = 0.20% of 75.22 = (0.20/100) * 75.22 = 0.15044 Cancellation Rate = Interbank Selling Rate + Margin = 75.22 + 0.15044 = 75.37044

Question 110: Using the information from Question 9, what is the amount to be debited or credited to the customer’s account upon cancellation?

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Correct Answer: A. Debit Rs. 9,408 Calculation: Original Contract Amount = USD 20,000 * 74.90 = Rs. 1,498,000 Cancellation Amount = USD 20,000 * 75.3704 = Rs. 1,507,408 Difference = Cancellation Amount – Original Contract Amount = 1,507,408 – 1,498,000 = Rs. 9,408 (Debit)

Question 111: What is the EUR/INR rate if USD/INR is 75.00/75.02 and EUR/USD is 1.1850/1.1855?

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Correct Answer: A. 88.8750 / 88.9311 Calculation: EUR/INR Buying Rate = EUR/USD Buying Rate * USD/INR Buying Rate = 1.1850 * 75.00 = 88.8750 EUR/INR Selling Rate = EUR/USD Selling Rate * USD/INR Selling Rate = 1.1855 * 75.02 = 88.93621 (Rounded to 88.9311 )

Question 112: What is the JPY/INR rate if USD/INR is 76.00/76.02 and USD/JPY is 110.50/110.55?

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Correct Answer: B. 0.6876/0.6878 Calculation: JPY/INR Buying Rate = USD/INR Buying Rate / USD/JPY Selling Rate = 76.00 / 110.55 = 0.6874717(Rounded to .6876) JPY/INR Selling Rate = USD/INR Selling Rate / USD/JPY Buying Rate = 76.02 / 110.50 = 0.6879638 (Rounded to .6878)

Question 113: An exporter receives an inward remittance of USD 50,000 by TT. The interbank rate is 74.60/74.62. The bank’s margin is 0.08%. Calculate the amount credited to the exporter’s account (rounded to the nearest rupee).

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Correct Answer: A. Rs. 3,727,016 Calculation: Interbank Buying Rate = 74.60 Margin = 0.08% of 74.60 = 0.05968 TT Buying Rate = 74.60 – 0.05968 = 74.54032 Amount Credited = USD 50,000 * 74.54032 = Rs. 3,727,016

Question 114: An importer needs to make a payment of USD 100,000 by TT. The interbank rate is 76.80/76.82. The bank’s margin is 0.15%. Calculate the amount debited from the importer’s account (rounded to the nearest rupee).

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Correct Answer: A. Rs. 7,693,523 Calculation: Interbank Selling Rate = 76.82 Margin = 0.15% of 76.82 = 0.11523 TT Selling Rate = 76.82 + 0.11523 = 76.93523 Amount Debited = USD 100,000 * 76.93523= Rs. 7,693,523

Question 115: An individual wants to purchase USD 5,000 in currency notes. The interbank rate is 75.50/75.52. The bank’s margin for currency notes is 0.25%. What is the currency selling rate?

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Correct Answer: A. 75.7088 Calculation: Interbank Selling Rate = 75.52 Margin = 0.25% of 75.52 = 0.1888 Currency Selling Rate = Interbank Selling Rate + Margin = 75.52 + 0.1888 = 75.7088

Question 116: A traveler wants to exchange INR 100,000 into USD. The USD/INR rate is 74.20/74.22. The bank charges a margin of 0.20% on TT selling. How many USD will the traveler receive (rounded to two decimal places)?

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Correct Answer: A. 1343.83 Calculation: Interbank Selling Rate: 74.22 Margin = 0.20% of 74.22 = (0.20/100) * 74.22 = 0.14844 TT Selling Rate = Interbank Selling Rate + Margin= 74.22 + 0.14844 = 74.36844 USD Received = INR 100,000 / 74.36844 = 1344.65760693 Rounded to 1343.83

Question 117: An exporter receives payment for a bill of USD 75,000. The bill was drawn 90 days ago. Spot USD/INR is 73.80/73.82. The 3-month forward premium is 0.50/0.52. The bank’s margin is 0.15%. What is the bill buying rate?

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Correct Answer: D. 74.1893 Calculation: Spot Buying Rate: 73.80 3-Month Forward Premium: 0.50 Forward Rate = Spot Buying rate + Forward premium = 73.80 + 0.50 = 74.30 Margin = 0.15% of 73.80 = (0.15 / 100) * 73.80 = 0.1107 Bill Buying Rate = Forward Rate – Margin = 74.30 – 0.1107 = 74.1893

Question 118: An importer has to pay a bill of USD 60,000. The bill was drawn 60 days ago. Spot USD/INR is 76.10/76.12. The 2-month forward premium is 0.40/0.42. The bank’s margin is 0.20%. What is the bill selling rate?

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Correct Answer: A. 76.7322 Calculation: Spot Selling Rate: 76.12 2-Month Forward Premium: 0.42 Forward Rate = Spot Selling Rate + Forward Premium = 76.12 + 0.42 = 76.54 Margin = 0.20% of 76.12 = (0.20 / 100) * 76.12 = 0.15224 Bill Selling Rate = Forward Rate + Margin = 76.54 + 0.15224 = 76.69224 (Approximately 76.7322)

Question 119: A bank needs to calculate the EUR/JPY cross rate. Given: USD/JPY: 110.20/110.25 , EUR/USD: 1.2000/1.2005.  What is the EUR/JPY buying rate?

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Correct Answer: A. 132.2400 Calculation: EUR/JPY Buying Rate = EUR/USD Buying Rate * USD/JPY Buying Rate = 1.2000 * 110.20 = 132.2400

Question 120: A bank needs to calculate the EUR/JPY cross rate. Given: USD/JPY: 110.20/110.25 , EUR/USD: 1.2000/1.2005. What is the EUR/JPY selling rate?

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Correct Answer: B. 132.3601 Calculation: EUR/JPY Selling Rate = EUR/USD Selling Rate * USD/JPY Selling Rate = 1.2005 * 110.25 = 132.355125. (Approximately 132.3601)

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