International Finance MCQs 2026

A forward exchange rate is agreed today for currency delivery

1. A at a specified future date ✓
2. B immediately ✓
3. C never ✓
4. D only by central banks ✓

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

1. A appreciated ✓
2. B been revalued ✓
3. C depreciated ✓
4. D stayed constant ✓

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

1. A the central bank alone ✓
2. B the IMF ✓
3. C a fixed gold value ✓
4. D market forces of supply and demand ✓

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

1. A set by traders each day ✓
2. B maintained by the central bank at an official level ✓
3. C always rising ✓
4. D irrelevant to trade ✓

Purchasing Power Parity theory links exchange rates to

1. A interest rates ✓
2. B tax rates ✓
3. C relative price levels (inflation) between countries ✓
4. D stock prices ✓

Interest Rate Parity relates the forward premium or discount to

1. A the interest rate differential between two countries ✓
2. B inflation only ✓
3. C tax rates ✓
4. D import tariffs ✓

The Balance of Payments records

1. A all economic transactions between a country and the rest of the world ✓
2. B only exports ✓
3. C only the government budget ✓
4. D only taxes collected ✓

The current account of the balance of payments includes

1. A foreign direct investment ✓
2. B portfolio capital flows ✓
3. C trade in goods and services, income and transfers ✓
4. D reserve changes only ✓

A country experiencing a trade deficit imports

1. A less than it exports ✓
2. B more than it exports ✓
3. C nothing at all ✓
4. D only services ✓

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

1. A more expensive abroad ✓
2. B unchanged ✓
3. C illegal ✓
4. D cheaper and more competitive abroad ✓

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

1. A pegged ✓
2. B devalued ✓
3. C convertible ✓
4. D floating ✓

Currency arbitrage involves

1. A profiting from exchange-rate differences across markets ✓
2. B long-term investing ✓
3. C paying tariffs ✓
4. D issuing bonds ✓

A cross rate is an exchange rate between two currencies

1. A fixed by the IMF ✓
2. B always equal to one ✓
3. C that must involve gold ✓
4. D derived through a third (common) currency ✓

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

1. A World Trade Organization ✓
2. B International Monetary Fund (IMF) ✓
3. C United Nations ✓
4. D World Health Organization ✓

The World Bank's primary role is to

1. A set global exchange rates ✓
2. B provide long-term development finance to member countries ✓
3. C print Special Drawing Rights ✓
4. D regulate world tariffs ✓

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

1. A US Federal Reserve ✓
2. B World Bank ✓
3. C World Trade Organization ✓
4. D International Monetary Fund ✓

The 1944 Bretton Woods system established

1. A fully floating exchange rates ✓
2. B the euro ✓
3. C a system of fixed exchange rates tied to the US dollar (convertible to gold) ✓
4. D the classical gold standard for the first time ✓

Transaction exposure is the risk that exchange-rate changes affect

1. A the value of a firm's outstanding foreign-currency payables or receivables ✓
2. B tax filings ✓
3. C domestic sales only ✓
4. D the number of shares ✓

Translation (accounting) exposure arises when

1. A goods are shipped abroad ✓
2. B tariffs change ✓
3. C interest rates rise ✓
4. D foreign-currency financial statements are consolidated into the home currency ✓

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

1. A speculation ✓
2. B arbitrage ✓
3. C hedging ✓
4. D devaluation ✓

A currency swap involves

1. A exchanging principal and interest payments in one currency for those in another ✓
2. B buying common stocks ✓
3. C paying import tariffs ✓
4. D issuing new equity ✓

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

1. A short-term trading ✓
2. B lasting control or significant influence over a foreign enterprise ✓
3. C only buying bonds ✓
4. D no ownership at all ✓

A hard currency is one that is

1. A widely accepted and stable in value, like the US dollar ✓
2. B about to collapse ✓
3. C used only domestically ✓
4. D backed by tariffs ✓

The euro is the common currency of the

1. A United Kingdom ✓
2. B Eurozone member states ✓
3. C United States ✓
4. D entire world ✓

LIBOR historically served as a benchmark

1. A exchange rate ✓
2. B tax rate ✓
3. C import tariff ✓
4. D interbank lending interest rate ✓

Under the classical gold standard, currencies were

1. A floated freely ✓
2. B tied to oil prices ✓
3. C convertible into fixed amounts of gold ✓
4. D backed only by silver ✓

An appreciation of the home currency makes imports

1. A more expensive ✓
2. B unchanged ✓
3. C cheaper ✓
4. D illegal ✓

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

1. A the capital account only ✓
2. B official reserves ✓
3. C foreign direct investment ✓
4. D the current account (transfers) ✓

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

1. A transaction exposure ✓
2. B economic (operating) exposure ✓
3. C translation exposure ✓
4. D political risk ✓

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

1. A mostly floats but with occasional central-bank intervention ✓
2. B is completely fixed ✓
3. C is set by the IMF ✓
4. D never changes ✓

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

1. A premium ✓
2. B discount ✓
3. C rate equal to the spot ✓
4. D rate of zero ✓

The market where currencies are bought and sold is the

1. A foreign exchange (forex) market ✓
2. B stock market ✓
3. C bond market only ✓
4. D commodity market ✓

Capital flight refers to

1. A airline financing ✓
2. B tourism spending ✓
3. C large, rapid outflows of financial capital from a country ✓
4. D importing machinery ✓

A trade surplus occurs when a country's exports

1. A equal its imports ✓
2. B are zero ✓
3. C are banned ✓
4. D exceed its imports ✓

Foreign exchange reserves are held by a central bank mainly to

1. A support the currency and settle international payments ✓
2. B pay government salaries ✓
3. C build roads ✓
4. D fund schools ✓

Speculation in the forex market involves

1. A hedging existing risk ✓
2. B settling trade invoices ✓
3. C taking positions to profit from expected exchange-rate movements ✓
4. D paying tariffs ✓

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

1. A appreciate ✓
2. B be revalued upward ✓
3. C stay perfectly fixed ✓
4. D depreciate ✓

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

1. A import tariffs ✓
2. B monetary policy and market intervention ✓
3. C the federal fiscal budget ✓
4. D issuing company shares ✓

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

1. A exchange currency at a set rate before expiry ✓
2. B pay tariffs ✓
3. C issue bonds ✓
4. D fix the spot rate permanently ✓

Nostro and Vostro accounts are used in international banking to

1. A record taxes ✓
2. B issue equity ✓
3. C settle cross-border transactions between banks ✓
4. D set tariffs ✓

The main advantage of a fixed exchange rate is

1. A an automatically balanced trade account ✓
2. B higher inflation ✓
3. C unlimited money printing ✓
4. D exchange-rate stability and predictability for trade ✓

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

1. A depreciate ✓
2. B appreciate ✓
3. C be devalued ✓
4. D disappear ✓

The benchmark interest rate that replaced US dollar LIBOR is the

1. A EURIBOR ✓
2. B Secured Overnight Financing Rate (SOFR) ✓
3. C treasury bill rate ✓
4. D central bank discount rate ✓

The foreign exchange rate is

1. A the interest rate on bank loans ✓
2. B the price of one currency in terms of another ✓
3. C the domestic inflation rate ✓
4. D the tax charged on imports ✓

A spot exchange rate is the rate for

1. A delivery in one year ✓
2. B delivery in ninety days ✓
3. C government transactions only ✓
4. D immediate (current) delivery of currency ✓