Question : Hedging is possible in:
Option 1: spot market
Option 2: forward market
Option 3: managed floating system
Option 4: both (a) and (b)
Correct Answer: both (a) and (b)
Solution : The correct answer is d) both (a) and (b)
Hedging is possible in both the spot market and the forward market.
In the spot market, hedging involves entering into offsetting transactions to mitigate the risk of adverse price movements in the underlying asset. For example, a company may enter into a spot foreign exchange transaction to buy or sell a currency at the current exchange rate to hedge against potential exchange rate fluctuations.
In the forward market, hedging is commonly used to manage future price risks. Companies can enter into forward contracts, which are agreements to buy or sell an asset at a predetermined price on a future date. By entering into a forward contract, companies can lock in a future exchange rate to hedge against potential adverse currency movements.
Both the spot market and the forward market provide tools and mechanisms for market participants to hedge their risks and protect themselves from potential losses associated with price or exchange rate movements.
Question : Statement1: Managed floating rate system is a hybrid of fixed exchange rate and a flexible exchange rate system.
Statement 2: Managed floating rate system is also known as Dirty floating.
Option 1: Both the statements are true.
Option 2: Both the statements are false.
Option 3: Statement 1 is true and Statement 2 is false
Option 4: Statement 2 is true and Statement 1 is false
Question : Another name of flexible exchange rate system is:
Option 1: Adjustable peg system
Option 2: Dirty floating system
Option 3: Floating exchange system
Option 4: Both (a) and (b)
Question : A ________ exchange rate is determined by the forces of supply and demand in the foreign exchange market.
Option 1: fixed
Option 2: floating
Option 3: managed
Option 4: pegged
Question : Which of the following is an example of a managed exchange rate system?
Option 1: Currency pegging
Option 2: Currency hedging
Option 3: Currency speculation
Option 4: Currency arbitrage
Question : The exchange rate generally remain stable and only a small variation is possible. This type of system is applicable under
Option 1: Fixed exchange rate system
Option 2: Flexible exchange rate system
Option 3: Managed floating rate system
Option 4: None of the above.
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile