1. Which of the following is a primary product of the foreign exchange market?
A. Government Bonds
B. Corporate Debentures
C. Spot and Forward Contracts
D. Equity Shares
Spot and forward contracts are primary products traded in the foreign exchange market, allowing participants to buy/sell currencies at present or future dates.
2. In a forward exchange contract, the exchange rate is determined:
A. At the time of settlement only
B. At the time of contract initiation for future settlement
C. By RBI daily for all banks
D. Randomly on maturity date
Forward contracts lock an exchange rate at the time of initiation for a future settlement date, protecting parties from currency fluctuations.
3. Which product of the foreign exchange market is used primarily for hedging against currency risk?
A. Currency Swaps
B. Spot Transactions
C. Equity Options
D. Forward Contracts
Forward contracts are widely used for hedging currency risk, as they allow fixing the rate in advance to avoid adverse exchange rate movements.
4. A currency swap involves:
A. Exchange of principal and interest in one currency for principal and interest in another currency
B. Buying currency at spot and selling at forward
C. Selling bonds in one market and buying in another
D. Exchanging one equity for another
Currency swaps are agreements to exchange principal and interest payments in one currency for equivalent amounts in another currency, often for hedging or financing purposes.
5. Which of the following is TRUE about spot transactions in foreign exchange markets?
A. Settlement occurs after 90 days
B. Rate is fixed for one year
C. Settlement usually occurs within two business days
D. Only central banks can trade
Spot transactions involve immediate exchange of currencies, with settlement usually occurring within two business days from the trade date.
6. Which of the following is a key product of the money market?
A. Equity Shares
B. Treasury Bills (T-Bills)
C. Corporate Bonds with 10-year maturity
D. Mutual Fund Units
Treasury Bills (T-Bills) are short-term debt instruments issued by the government and are a primary product of the money market, providing liquidity and safety.
7. Commercial Papers (CPs) are primarily issued by:
A. RBI
B. Municipal Corporations
C. Corporates with high credit rating
D. Cooperative Banks
Commercial Papers are unsecured short-term instruments issued by corporates with high credit ratings to meet their working capital requirements.
8. Certificates of Deposit (CDs) are:
A. Negotiable money market instruments issued by banks
B. Equity-linked securities
C. Long-term government bonds
D. Mutual Fund Schemes
Certificates of Deposit are short-term, negotiable instruments issued by banks to raise funds from the market at a fixed interest rate.
9. Which of the following statements is TRUE regarding the money market?
A. It deals only with equities and shares
B. It provides long-term funding for corporates
C. Only central banks participate in the market
D. It provides short-term funds and liquidity to banks and corporates
The money market provides short-term funds and liquidity to banks, financial institutions, and corporates, typically with maturities of less than one year.
10. Repurchase Agreements (Repos) in the money market are primarily used for:
A. Long-term borrowing
B. Short-term borrowing and liquidity management
C. Issuing equity shares
D. Foreign exchange speculation
Repos are short-term borrowing instruments where securities are sold with an agreement to repurchase at a later date, helping banks manage liquidity efficiently.
11. Which of the following is a primary product of the securities market?
A. Treasury Bills
B. Commercial Papers
C. Equity Shares
D. Certificates of Deposit
Equity shares are traded in the securities market, allowing companies to raise capital from the public and providing investors with ownership stakes.
12. Debentures issued by companies are classified as:
A. Debt instruments
B. Equity instruments
C. Money market instruments
D. Derivatives
Debentures are long-term debt instruments issued by companies to raise funds, typically with a fixed interest rate and maturity date.
13. Which of the following securities provides ownership in a company and voting rights to the investor?
A. Bonds
B. Equity Shares
C. Commercial Papers
D. Certificates of Deposit
Equity shares represent ownership in a company and usually carry voting rights, allowing shareholders to participate in corporate decisions.
14. Preference shares differ from equity shares because:
A. They always carry voting rights
B. They fluctuate with market prices like equity
C. They are short-term instruments
D. They provide fixed dividend and have preference over equity in dividend payment
Preference shares provide a fixed dividend and are paid before equity shareholders, but generally do not carry voting rights.
15. Which of the following is TRUE about listed securities in the stock market?
A. They can be bought and sold on a recognized stock exchange
B. They are issued only by banks
C. They are always short-term instruments
D. They cannot provide dividends
Listed securities are those that are admitted to trading on a recognized stock exchange, allowing investors to buy and sell them easily.
16. The domestic financial market primarily deals with:
A. Only foreign currencies
B. Only global commodities
C. Financial instruments within the country
D. Only international bonds
Domestic financial markets deal with instruments like equity, debt, and money market instruments within the country.
17. Which of the following is a major feature of global financial markets?
A. Trading is limited to the domestic currency only
B. Cross-border investment and trading of currencies, equities, and bonds
C. Only short-term money market instruments are traded
D. No participation by foreign institutional investors
Global markets facilitate cross-border trading of currencies, equities, bonds, and derivatives, enabling international investment.
18. The Foreign Institutional Investors (FIIs) participate mainly in:
A. Domestic equity and debt markets
B. Only money market instruments abroad
C. Government treasury operations only
D. Private bank lending exclusively
FIIs invest in domestic equity and debt markets to gain returns while diversifying internationally.
19. Which of the following is TRUE about the integration of domestic and global markets?
A. Domestic markets are isolated and unaffected by global trends
B. Global markets operate independently without influencing domestic markets
C. Domestic market liquidity is always higher than global market liquidity
D. Domestic markets are influenced by global interest rates, capital flows, and investor sentiment
Domestic markets are increasingly influenced by global factors such as interest rates, capital flows, and investor sentiment, showing market integration.
20. Eurocurrency markets are primarily related to:
A. Domestic treasury bills only
B. Deposits and loans in a currency outside its home country
C. Trading only in government bonds
D. Forex derivatives within domestic banks
Eurocurrency markets deal with deposits and loans in a currency outside the country of its origin, facilitating international banking and liquidity management.
21. Which of the following is a common derivative used in treasury for hedging interest rate risk?
A. Equity Shares
B. Commercial Papers
C. Interest Rate Swaps
D. Certificates of Deposit
Interest Rate Swaps allow banks and corporates to exchange fixed and floating interest rate payments to hedge against interest rate fluctuations.
22. A forward rate agreement (FRA) is used to:
A. Trade equities on a future date
B. Lock in an interest rate for a future period
C. Hedge foreign exchange settlement risk only
D. Issue long-term bonds
Forward Rate Agreements allow parties to fix an interest rate today for a specified future period, helping manage interest rate exposure.
23. Which of the following derivatives helps manage currency risk in treasury operations?
A. Currency Options
B. Equity Futures
C. Interest Rate Swaps
D. Certificates of Deposit
Currency options give the right, but not the obligation, to buy or sell a currency at a specified rate, helping hedge against exchange rate volatility.
24. Interest rate futures are primarily used to:
A. Hedge equity market risk
B. Hedge foreign exchange risk
C. Borrow long-term capital
D. Hedge against interest rate fluctuations
Interest rate futures allow institutions to hedge against the risk of interest rate movements on bonds and loans.
25. Which of the following is TRUE about swaps in treasury risk management?
A. They are only for equities
B. They are agreements to exchange cash flows or instruments to manage risk
C. They have no role in hedging
D. They are short-term money market instruments
Swaps are derivative contracts where parties exchange cash flows, currencies, or interest rates to manage financial risk.
26. Which of the following is a key purpose of treasury risk management?
A. To identify, measure, and mitigate financial risks such as interest rate, currency, and liquidity risks
B. To maximize equity returns only
C. To issue commercial papers exclusively
D. To manage only fixed deposits
Treasury risk management involves identifying, measuring, and mitigating financial risks such as interest rate risk, currency risk, credit risk, and liquidity risk.
27. Value at Risk (VaR) is used in treasury to:
A. Calculate interest rates
B. Hedge foreign exchange risk only
C. Measure potential loss in a portfolio under normal market conditions
D. Issue equity shares
Value at Risk (VaR) estimates the potential maximum loss in a portfolio over a specified time period at a given confidence level.
28. Options contracts in treasury are primarily used for:
A. Trading long-term bonds only
B. Issuing commercial papers
C. Buying equities exclusively
D. Hedging or speculating on interest rate or currency movements
Options give the right, but not the obligation, to buy or sell an asset, making them useful for hedging or speculative purposes in treasury operations.
29. Credit derivatives in treasury management are used to:
A. Hedge only equity market risk
B. Transfer credit risk of loans or bonds between parties
C. Issue certificates of deposit
D. Manage foreign currency deposits
Credit derivatives such as credit default swaps allow banks to transfer the credit risk of loans or bonds to other parties, reducing exposure.
30. Liquidity risk management in treasury involves:
A. Issuing long-term bonds only
B. Hedging foreign currency only
C. Ensuring the bank has sufficient funds to meet obligations when due
D. Investing exclusively in equity shares
Liquidity risk management ensures the bank can meet its financial obligations as they come due, maintaining operational stability.
