A. A centralized market regulated by a single authority
B. A market limited only to trading of US Dollars
C. A decentralized over-the-counter market for trading currencies globally
D. A stock exchange for currency trading in India
The Forex market is a global decentralized or over-the-counter (OTC) market for trading currencies, unlike stock exchanges which are centralized.
2. Which of the following is the largest participant in the global Forex market?
A. Retail investors
B. Commercial banks and financial institutions
C. Exporters and importers
D. Central banks
Commercial banks and financial institutions account for the bulk of daily forex transactions, providing liquidity and intermediation services.
3. The Foreign Exchange Dealers’ Association of India (FEDAI) was established in which year to regulate forex practices among banks?
A. 1972
B. 1985
C. 1999
D. 1958
FEDAI was established in 1958 to frame rules for forex business in India and standardize practices among banks.
4. Before the liberalization of the Indian forex market in 1990s, exchange rates in India were:
A. Administered and fixed by RBI
B. Determined by inter-bank demand and supply
C. Floating freely as per global market
D. Based on IMF’s Special Drawing Rights (SDR)
Prior to the 1990s reforms, India followed a fixed exchange rate regime where the RBI controlled the currency value through official rates.
5. In 1992, India introduced the Liberalized Exchange Rate Management System (LERMS). What was its key feature?
A. Full convertibility of the rupee on the capital account
B. Complete floating of the rupee in international markets
C. Dual exchange rate system with partial market determination
D. Pegging the rupee to the US dollar
Under LERMS (1992), India adopted a dual exchange rate system where part of forex was converted at official rate and part at market rate, paving the way for a unified market-based system later.
6. India moved to a market-determined exchange rate system in:
A. 1992
B. 1993
C. 1995
D. 1997
In 1993, India adopted a unified, market-determined exchange rate system, replacing the dual system of LERMS.
7. Which of the following is NOT a characteristic of the global forex market?
A. It operates 24 hours a day across different time zones
B. It is the most liquid financial market in the world
C. It is a decentralized market with no single physical location
D. It is conducted only during Indian banking hours
The forex market is global, decentralized, highly liquid, and operates 24x5 across time zones. It is not restricted to Indian banking hours.
8. Which characteristic of the forex market makes it highly liquid?
A. Presence of large number of buyers and sellers globally
B. Support from central banks
C. Government intervention in currency rates
D. Use of only major currencies like USD and EUR
Liquidity in forex markets arises from the vast number of global buyers and sellers who continuously trade currencies.
9. Which of the following is a unique feature of the forex market compared to stock markets?
A. Trading through electronic systems
B. Requirement of intermediaries
C. 24-hour trading across global time zones
D. Price fluctuations based on demand and supply
Unlike stock exchanges, forex markets operate 24 hours a day, covering major global trading centers across time zones.
10. Which participant in the forex market primarily aims to stabilize currency fluctuations in the economy?
A. Exporters
B. Central banks
C. Retail investors
D. Tourists
Central banks intervene in forex markets to stabilize exchange rates and ensure economic stability.
11. Exporters and importers participate in the forex market mainly for:
A. Speculation on currency movements
B. Monetary policy implementation
C. Regulating money supply
D. Settlement of international trade transactions
Exporters and importers use the forex market to convert currencies for cross-border trade settlement.
12. Who are considered as hedgers in the forex market?
A. Participants who use derivatives to reduce exchange rate risk
B. Participants who speculate to make profits from currency movements
C. Regulators monitoring forex transactions
D. Tourists exchanging money for travel
Hedgers are those who use forex derivatives like forwards and options to minimize losses from adverse currency movements.
13. LIBOR was traditionally used as a benchmark interest rate in the global financial system. LIBOR stands for:
A. London Investment Bank Offered Rate
B. Local Inter-Bank Outstanding Rate
C. London Inter-Bank Offered Rate
D. Long-term International Borrowing Rate
LIBOR = London Inter-Bank Offered Rate, the rate at which major banks lent to each other in the London interbank market.
14. Which of the following has replaced LIBOR as the globally accepted benchmark rate?
A. SOIBOR (Singapore Interbank Offered Rate)
B. Risk-Free Rates (RFRs) such as SOFR, SONIA, €STR
C. Fed Funds Rate
D. MIBOR (Mumbai Interbank Offered Rate)
LIBOR was phased out by June 2023. Alternative Reference Rates like SOFR (USD), SONIA (GBP), €STR (Euro) are now used globally.
15. SOFR, which replaced USD LIBOR, stands for:
A. Secured Overnight Financing Rate
B. Short-term Offshore Funding Rate
C. Standard Overnight Forward Rate
D. Sovereign Overnight Funded Rate
SOFR = Secured Overnight Financing Rate, based on transactions in the US Treasury repo market, and is the official replacement for USD LIBOR.
16. In India, which reference rate is commonly used for domestic financial markets?
A. SONIA
B. SOFR
C. €STR
D. MIBOR (Mumbai Interbank Offered Rate)
In India, MIBOR (Mumbai Interbank Offered Rate) published by NSE is widely used as a reference rate for domestic money markets.
17. The Foreign Exchange Dealers’ Association of India (FEDAI) primarily issues rules related to:
A. Stock market trading and settlement
B. Conduct of foreign exchange business among banks
C. Commodity derivatives trading
D. Insurance and reinsurance pricing
FEDAI frames guidelines for inter-bank forex transactions, exchange rate quotes, and standardization of forex operations in India.
18. Which of the following is NOT a function of FEDAI?
A. Framing rules for forex contracts and settlement
B. Standardizing documentation and practices in forex dealings
C. Determining monetary policy of the country
D. Issuing guidelines for forex quotations to banks
FEDAI does not determine monetary policy (which is RBI’s role). It regulates operational aspects of forex business among banks.
19. The Foreign Exchange Management Act (FEMA), 1999 replaced which earlier legislation?
A. Foreign Exchange Regulation Act (FERA), 1973
B. Companies Act, 1956
C. SEBI Act, 1992
D. Prevention of Money Laundering Act, 2002
FEMA, 1999 replaced FERA, 1973 to liberalize and simplify foreign exchange regulations in line with economic reforms.
20. Under FEMA, 1999 the emphasis is primarily on:
A. Criminal prosecution of forex violations
B. Restricting all foreign exchange transactions
C. Licensing requirement for individuals to hold forex
D. Facilitating external trade and payments and promoting orderly forex market
FEMA focuses on facilitating trade, payments, and developing an orderly forex market, unlike FERA which was restrictive and criminal in nature.
21. The FX-Retail platform launched by RBI and CCIL is meant for:
A. Corporate treasuries only
B. Retail customers to buy/sell forex for small-value transactions
C. Only exporters with turnover above $1 million
D. Inter-bank forex trading exclusively
The FX-Retail platform provides a transparent online facility for retail customers and small businesses to buy/sell forex through banks.
22. Which organization operates the FX-Retail platform in India?
A. National Stock Exchange (NSE)
B. Reserve Bank of India (RBI)
C. Clearing Corporation of India Ltd. (CCIL)
D. Securities and Exchange Board of India (SEBI)
FX-Retail is operated by CCIL under RBI’s guidance, allowing individuals and SMEs to access competitive forex rates.
23. The US Dollar Index (USDX) measures:
A. The value of the US dollar relative to a basket of major world currencies
B. The value of the US dollar against gold
C. The inflation rate in the United States
D. The US stock market performance
The USDX measures the performance of the US dollar against a weighted basket of six major currencies (EUR, JPY, GBP, CAD, SEK, CHF).
24. In the US Dollar Index (USDX), which currency has the highest weight?
A. Japanese Yen (JPY)
B. British Pound (GBP)
C. Swiss Franc (CHF)
D. Euro (EUR)
The Euro has the highest weight of around 57.6% in the US Dollar Index basket, making it the most influential currency in the index.
25. What is an American Depository Receipt (ADR)?
A. A certificate issued by Indian banks for foreign investors
B. A government bond traded in the US market
C. A negotiable certificate issued by a US bank representing shares of a foreign company
D. A type of derivative contract linked to forex markets
ADRs are issued by US banks and represent ownership in the shares of a foreign company. They allow investors in the US to trade shares of foreign companies in US dollars.
26. Which currency are ADRs generally denominated in?
A. US Dollars
B. Indian Rupees
C. Euro
D. British Pound
ADRs are always denominated and traded in US Dollars, even though the underlying shares belong to a foreign company.
27. What is a Global Depository Receipt (GDR)?
A. A certificate issued by RBI to Indian investors for global trading
B. A type of mutual fund investing in global equities
C. A debt instrument issued by multinational corporations
D. A certificate issued by international banks representing shares of a foreign company, traded outside the US
GDRs are negotiable certificates issued by international banks, representing shares of a foreign company. They are usually traded in European and Asian markets outside the US.
28. In which currencies are GDRs generally denominated?
A. Only in US Dollars
B. In US Dollars and Euros
C. Only in Indian Rupees
D. Only in British Pounds
GDRs are generally denominated in US Dollars and sometimes in Euros, allowing foreign investors to invest easily in global companies.
29. Which of the following is a key difference between ADRs and GDRs?
A. ADRs are issued by Indian banks, GDRs by US banks
B. ADRs are traded globally, GDRs only in US markets
C. ADRs are traded in US markets, while GDRs are traded outside the US
D. ADRs are debt instruments, GDRs are equity instruments
ADRs are traded in US stock markets, whereas GDRs are issued and traded in markets outside the US such as London or Luxembourg.
30. Indian companies issue ADRs/GDRs mainly for:
A. Meeting short-term working capital needs
B. Hedging against foreign exchange risks
C. Paying dividends to foreign shareholders
D. Raising capital from international investors
ADRs and GDRs help Indian companies raise funds from international investors by making their shares accessible in foreign markets.
