1. What is the main purpose of foreign exchange (Forex) market?
- A. To lend money to foreign governments
- B. To facilitate conversion of one currency into another
- C. To fix domestic interest rates
- D. To issue foreign bonds
The foreign exchange market enables the conversion of one currency into another, facilitating international trade and investment.
2. If 1 USD = 83 INR, what is the value of ₹41,500 in USD?
- A. $500
- B. $400
- C. $500
- D. $450
Value in USD = 41,500 ÷ 83 = $500.
3. What is the ‘bid rate’ in foreign exchange?
- A. The rate at which the bank buys foreign currency
- B. The rate at which the bank sells foreign currency
- C. The official RBI reference rate
- D. The average of buying and selling rates
The bid rate is the rate at which a bank or dealer is willing to buy a foreign currency from customers.
4. In Forex arithmetic, if the USD/INR spot rate is 83 and forward premium is 2%, what is the 1-year forward rate?
- A. 81.34
- B. 82.50
- C. 83.50
- D. 84.66
Forward Rate = Spot Rate × (1 + Forward Premium) = 83 × 1.02 = 84.66.
5. Which of the following is NOT a type of foreign exchange transaction?
- A. Spot transaction
- B. Domestic lending
- C. Forward transaction
- D. Swap transaction
Domestic lending is not a Forex transaction. Forex transactions include spot, forward, and swap deals.
6. Which organization regulates the foreign exchange market in India?
- A. SEBI
- B. IRDAI
- C. Reserve Bank of India (RBI)
- D. Ministry of Finance
RBI is the apex body regulating the foreign exchange market in India, issuing guidelines for banks and authorized dealers.
7. Authorized Dealers in India are primarily allowed to:
- A. Issue international bonds
- B. Deal in foreign exchange and manage cross-border transactions
- C. Control monetary policy
- D. Set the base rate for domestic loans
Authorized Dealers, usually banks, are licensed by RBI to deal in foreign currency and handle international trade settlements.
8. The USD/INR exchange rate is quoted as 83.50/83.60. What is the spread?
- A. 0.05
- B. 0.10
- C. 0.20
- D. 0.10
Spread = Selling Rate - Buying Rate = 83.60 - 83.50 = 0.10.
9. Which of the following is a major center for Forex trading in India?
- A. Mumbai
- B. Delhi
- C. Chennai
- D. Kolkata
Mumbai is the main hub for foreign exchange trading in India due to the presence of major banks and authorized dealers.
10. Which act governs Forex transactions in India?
- A. Companies Act, 2013
- B. Foreign Exchange Management Act (FEMA), 1999
- C. Banking Regulation Act, 1949
- D. Securities Contracts (Regulation) Act, 1956
FEMA, 1999 regulates all foreign exchange transactions in India, replacing the older FERA, 1973.
11. In a direct quote, the domestic currency is:
- A. Constant against all foreign currencies
- B. Always USD
- C. The variable currency quoted against one unit of foreign currency
- D. Not used in Forex arithmetic
In a direct quote, the domestic currency is expressed as the amount per unit of foreign currency (e.g., INR per 1 USD).
12. Which of the following is an example of an indirect quote in India?
- A. 1 INR = 0.012 USD
- B. 1 USD = 83 INR
- C. Spot rate = Forward rate
- D. 1 EUR = 1.1 USD
An indirect quote expresses the value of one unit of domestic currency in terms of foreign currency (e.g., 1 INR = 0.012 USD).
13. If USD/INR = 83, which is a direct quote for an Indian resident?
- A. 1 USD = 0.012 INR
- B. 1 INR = 83 USD
- C. 83 USD = 1 INR
- D. 1 USD = 83 INR
For an Indian resident, the domestic currency is INR. A direct quote shows the amount of INR per 1 USD.
14. What is the main advantage of using indirect quotes in international trade?
- A. It avoids RBI regulations
- B. It allows foreign traders to see prices in their own currency easily
- C. It fixes the forward rate automatically
- D. It eliminates currency risk
Indirect quotes express the domestic currency in terms of foreign currency, helping foreign traders understand costs in their own currency.
15. If the exchange rate is quoted as 1 EUR = 90 INR, then the indirect quote from the perspective of a European trader is:
- A. 0.0111 EUR per 1 INR
- B. 90 EUR per 1 INR
- C. 1 INR = 90 INR
- D. 90 INR per 1 EUR
Indirect quote = 1 / Direct Quote = 1 / 90 = 0.0111 EUR per 1 INR from the European perspective.
16. If 1 USD = 83 INR, what is the value of $2,000 in INR?
- A. ₹1,66,000
- B. ₹1,66,000
- C. ₹1,60,000
- D. ₹1,70,000
Value in INR = USD × Spot rate = 2,000 × 83 = ₹1,66,000.
17. Forward exchange rate is primarily used to:
- A. Determine interest rates
- B. Speculate on stock prices
- C. Calculate domestic inflation
- D. Hedge against future currency risk
Forward rates allow traders and businesses to lock in a future exchange rate to manage currency risk.
18. If the spot rate of USD/INR is 83 and the 6-month forward premium is 1.5%, the 6-month forward rate is:
- A. 84.25
- B. 82.50
- C. 83.50
- D. 85.00
Forward Rate = Spot Rate × (1 + Forward Premium) = 83 × 1.015 = 84.25.
19. A forward discount occurs when:
- A. Domestic currency is expected to appreciate
- B. Forward rate < Spot rate
- C. Spot rate < Forward rate
- D. Currency remains stable
Forward discount happens when the forward rate is lower than the spot rate, indicating expected depreciation of the foreign currency.
20. If the 1-year forward rate of USD/INR is quoted at 85 and the spot rate is 83, the forward premium is approximately:
- A. 1.5%
- B. 3%
- C. 2%
- D. 2.41%
Forward premium (%) = ((Forward Rate - Spot Rate) / Spot Rate) × 100 = ((85-83)/83)×100 ≈ 2.41%.
21. If USD/INR = 83 and EUR/USD = 1.1, what is the cross rate of EUR/INR?
- A. 91.3
- B. 84.3
- C. 81.5
- D. 90.0
Cross rate EUR/INR = EUR/USD × USD/INR = 1.1 × 83 = 91.3.
22. RBI permits banks to deal in Forex transactions with:
- A. Only domestic customers
- B. Authorized dealers, exporters, and importers
- C. Only foreign governments
- D. All individuals without restriction
RBI authorizes banks and dealers to handle Forex transactions primarily for trade, investment, and remittance purposes.
23. If a customer buys $10,000 at a spot rate of 83.20 INR/USD and the bank's commission is 0.2%, the total INR paid is approximately:
- A. ₹8,32,000
- B. ₹8,30,000
- C. ₹8,34,640
- D. ₹8,36,000
Total = 10,000 × 83.20 = 8,32,000; Commission = 0.2% of 8,32,000 = 1,664; Total INR = 8,32,000 + 1,664 = 8,34,640.
24. Forward contracts are settled:
- A. Immediately at spot rate
- B. Only after one year
- C. Only through RBI intervention
- D. On a future specified date at the agreed forward rate
Forward contracts allow parties to buy or sell currency at a predetermined rate on a future date, reducing exchange rate risk.
25. In India, all Forex transactions must comply with:
- A. Companies Act
- B. FEMA regulations and RBI guidelines
- C. Income Tax Act only
- D. SEBI Listing Regulations
All Forex dealings in India must follow the Foreign Exchange Management Act (FEMA) and RBI's regulations for authorized dealers.
