International Finance MCQs 2026

A forward exchange rate is agreed today for currency delivery

1. Aat a specified future date✓
2. Bimmediately✓
3. Cnever✓
4. Donly by central banks✓

If the Pakistani rupee moves from 280 to 300 per US dollar, the rupee has

1. Aappreciated✓
2. Bbeen revalued✓
3. Cdepreciated✓
4. Dstayed constant✓

Under a floating exchange rate system, the rate is determined by

1. Athe central bank alone✓
2. Bthe IMF✓
3. Ca fixed gold value✓
4. Dmarket forces of supply and demand✓

Under a fixed (pegged) exchange rate system, the rate is

1. Aset by traders each day✓
2. Bmaintained by the central bank at an official level✓
3. Calways rising✓
4. Dirrelevant to trade✓

Purchasing Power Parity theory links exchange rates to

1. Ainterest rates✓
2. Btax rates✓
3. Crelative price levels (inflation) between countries✓
4. Dstock prices✓

Interest Rate Parity relates the forward premium or discount to

1. Athe interest rate differential between two countries✓
2. Binflation only✓
3. Ctax rates✓
4. Dimport tariffs✓

The Balance of Payments records

1. Aall economic transactions between a country and the rest of the world✓
2. Bonly exports✓
3. Conly the government budget✓
4. Donly taxes collected✓

The current account of the balance of payments includes

1. Aforeign direct investment✓
2. Bportfolio capital flows✓
3. Ctrade in goods and services, income and transfers✓
4. Dreserve changes only✓

A country experiencing a trade deficit imports

1. Aless than it exports✓
2. Bmore than it exports✓
3. Cnothing at all✓
4. Donly services✓

Devaluation of a currency under a fixed system tends to make a country's exports

1. Amore expensive abroad✓
2. Bunchanged✓
3. Cillegal✓
4. Dcheaper and more competitive abroad✓

A currency that can be freely exchanged for others without restriction is said to be

1. Apegged✓
2. Bdevalued✓
3. Cconvertible✓
4. Dfloating✓

Currency arbitrage involves

1. Aprofiting from exchange-rate differences across markets✓
2. Blong-term investing✓
3. Cpaying tariffs✓
4. Dissuing bonds✓

A cross rate is an exchange rate between two currencies

1. Afixed by the IMF✓
2. Balways equal to one✓
3. Cthat must involve gold✓
4. Dderived through a third (common) currency✓

The institution that oversees the international monetary system and provides balance-of-payments support is the

1. AWorld Trade Organization✓
2. BInternational Monetary Fund (IMF)✓
3. CUnited Nations✓
4. DWorld Health Organization✓

The World Bank's primary role is to

1. Aset global exchange rates✓
2. Bprovide long-term development finance to member countries✓
3. Cprint Special Drawing Rights✓
4. Dregulate world tariffs✓

Special Drawing Rights (SDRs) are an international reserve asset created by the

1. AUS Federal Reserve✓
2. BWorld Bank✓
3. CWorld Trade Organization✓
4. DInternational Monetary Fund✓

The 1944 Bretton Woods system established

1. Afully floating exchange rates✓
2. Bthe euro✓
3. Ca system of fixed exchange rates tied to the US dollar (convertible to gold)✓
4. Dthe classical gold standard for the first time✓

Transaction exposure is the risk that exchange-rate changes affect

1. Athe value of a firm's outstanding foreign-currency payables or receivables✓
2. Btax filings✓
3. Cdomestic sales only✓
4. Dthe number of shares✓

Translation (accounting) exposure arises when

1. Agoods are shipped abroad✓
2. Btariffs change✓
3. Cinterest rates rise✓
4. Dforeign-currency financial statements are consolidated into the home currency✓

A forward contract used to lock in an exchange rate is an example of

1. Aspeculation✓
2. Barbitrage✓
3. Chedging✓
4. Ddevaluation✓

A currency swap involves

1. Aexchanging principal and interest payments in one currency for those in another✓
2. Bbuying common stocks✓
3. Cpaying import tariffs✓
4. Dissuing new equity✓

Foreign Direct Investment (FDI) differs from portfolio investment because FDI involves

1. Ashort-term trading✓
2. Blasting control or significant influence over a foreign enterprise✓
3. Conly buying bonds✓
4. Dno ownership at all✓

A hard currency is one that is

1. Awidely accepted and stable in value, like the US dollar✓
2. Babout to collapse✓
3. Cused only domestically✓
4. Dbacked by tariffs✓

The euro is the common currency of the

1. AUnited Kingdom✓
2. BEurozone member states✓
3. CUnited States✓
4. Dentire world✓

LIBOR historically served as a benchmark

1. Aexchange rate✓
2. Btax rate✓
3. Cimport tariff✓
4. Dinterbank lending interest rate✓

Under the classical gold standard, currencies were

1. Afloated freely✓
2. Btied to oil prices✓
3. Cconvertible into fixed amounts of gold✓
4. Dbacked only by silver✓

An appreciation of the home currency makes imports

1. Amore expensive✓
2. Bunchanged✓
3. Ccheaper✓
4. Dillegal✓

Remittances sent home by overseas workers are recorded in the balance of payments under

1. Athe capital account only✓
2. Bofficial reserves✓
3. Cforeign direct investment✓
4. Dthe current account (transfers)✓

The exchange-rate risk affecting a multinational firm's long-run competitive cash flows is called

1. Atransaction exposure✓
2. Beconomic (operating) exposure✓
3. Ctranslation exposure✓
4. Dpolitical risk✓

A managed float (dirty float) is a system where the exchange rate

1. Amostly floats but with occasional central-bank intervention✓
2. Bis completely fixed✓
3. Cis set by the IMF✓
4. Dnever changes✓

If UK interest rates exceed US rates, interest rate parity implies the pound will trade at a forward

1. Apremium✓
2. Bdiscount✓
3. Crate equal to the spot✓
4. Drate of zero✓

The market where currencies are bought and sold is the

1. Aforeign exchange (forex) market✓
2. Bstock market✓
3. Cbond market only✓
4. Dcommodity market✓

Capital flight refers to

1. Aairline financing✓
2. Btourism spending✓
3. Clarge, rapid outflows of financial capital from a country✓
4. Dimporting machinery✓

A trade surplus occurs when a country's exports

1. Aequal its imports✓
2. Bare zero✓
3. Care banned✓
4. Dexceed its imports✓

Foreign exchange reserves are held by a central bank mainly to

1. Asupport the currency and settle international payments✓
2. Bpay government salaries✓
3. Cbuild roads✓
4. Dfund schools✓

Speculation in the forex market involves

1. Ahedging existing risk✓
2. Bsettling trade invoices✓
3. Ctaking positions to profit from expected exchange-rate movements✓
4. Dpaying tariffs✓

Under freely floating rates, a persistent balance-of-payments deficit tends to cause the currency to

1. Aappreciate✓
2. Bbe revalued upward✓
3. Cstay perfectly fixed✓
4. Ddepreciate✓

The State Bank of Pakistan influences the rupee's exchange rate mainly through

1. Aimport tariffs✓
2. Bmonetary policy and market intervention✓
3. Cthe federal fiscal budget✓
4. Dissuing company shares✓

A currency option gives the holder the right, but not the obligation, to

1. Aexchange currency at a set rate before expiry✓
2. Bpay tariffs✓
3. Cissue bonds✓
4. Dfix the spot rate permanently✓

Nostro and Vostro accounts are used in international banking to

1. Arecord taxes✓
2. Bissue equity✓
3. Csettle cross-border transactions between banks✓
4. Dset tariffs✓

The main advantage of a fixed exchange rate is

1. Aan automatically balanced trade account✓
2. Bhigher inflation✓
3. Cunlimited money printing✓
4. Dexchange-rate stability and predictability for trade✓

An increase in a country's exports, other things equal, tends to cause its currency to

1. Adepreciate✓
2. Bappreciate✓
3. Cbe devalued✓
4. Ddisappear✓

The benchmark interest rate that replaced US dollar LIBOR is the

1. AEURIBOR✓
2. BSecured Overnight Financing Rate (SOFR)✓
3. Ctreasury bill rate✓
4. Dcentral bank discount rate✓

The foreign exchange rate is

1. Athe interest rate on bank loans✓
2. Bthe price of one currency in terms of another✓
3. Cthe domestic inflation rate✓
4. Dthe tax charged on imports✓

A spot exchange rate is the rate for

1. Adelivery in one year✓
2. Bdelivery in ninety days✓
3. Cgovernment transactions only✓
4. Dimmediate (current) delivery of currency✓