International Finance and Treasury MCQ Questions and Solutions with Explanations | Management

The primary component of the current account is the balance of trade. The balance of trade is the difference between the value of a country's imports and exports for a given period. The balance of trade is the largest component of a country's balance of payments. Economists use the BOT to measure the relative strength of a country's economy.

Factor income are income received by investors on foreign investments in financial assets securities. Factor income is income received from the factors of production: the inputs used in the production of goods or services in order to make an economic profit. Factor income on the use of land is called rent, income generated from labor is called wages, and income generated from capital is called profit.

LIBOR refers to London Inter Bank Offered Rate. The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.

European currency options can be exercised only on the expiration date; American currency options can be exercised any time up to the expiration date.

Conditional currency options are options where the premiums are cancelled if a trigger level is reached. A conditional call option is a provision attached to some callable bonds. Conditional call provisions are meant to protect investors if their high-yield bonds are called well in advance of maturity.

International Monetary Fund formal existence came into being in 27-12-45. The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the IMF had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.

Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the UK interest rate, the larger will be the forward discount of the foreign currency. Interest rate parity (IRP) is a theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

The Bretton Wood agreement failed in 1971, when President Richard Nixon severed the link between the dollar and gold — a decision made to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands.

A banker's acceptance is a draft drawn on and accepted by an bank. A banker's acceptance is an instrument representing a promised future payment by a bank. The payment is accepted and guaranteed by the bank as a time draft to be drawn on a deposit. The draft specifies the amount of funds, the date of the payment (or maturity), and the entity to which the payment is owed.

Type of bonds which does not have U.S treasury as collateral and are swapped for outstanding loans are classified as sovereign bonds. A sovereign bond is a debt security issued by a national government. Sovereign bonds can be denominated in a foreign currency or the government’s domestic currency; the ability to issue bonds denominated in domestic currency tends to be a luxury that most governments do not enjoy the less stable of a currency denomination, the higher the risk the bondholder's faces.