Saturday, November 1, 2025

QUESTION BANK – FOREIGN EXCHANGE & FOREX MANAGEMENT

 


     

QUESTION BANK –

FOREIGN EXCHANGE & FOREX MANAGEMENT

CHAPTER 1: INTRODUCTION TO FOREIGN EXCHANGE

1.1 Introduction to Foreign Exchange

Bloom’s Level 1 – Remember

  1. Define foreign exchange.

  2. What is meant by foreign exchange rate?

Bloom’s Level 2 – Understand
3. Explain the need for foreign exchange in international trade.
4. Discuss briefly how foreign exchange facilitates global business.

Bloom’s Level 3 – Apply
5. Illustrate with an example how exchange of currency takes place between two countries.

Bloom’s Level 4 – Analyze
6. Compare foreign exchange with domestic currency markets.

Bloom’s Level 5 – Evaluate
7. Evaluate the impact of foreign exchange on a country’s economic stability.

1.2 Meaning and Significance of Foreign Exchange

Short Notes:

  • Meaning of foreign exchange

  • Significance in international trade

Bloom’s Questions:

  1. (Remember) Define the term “Foreign Exchange Market.”

  2. (Understand) Why is foreign exchange significant for international business?

  3. (Apply) Give an example of how exchange rate fluctuations affect exporters and importers.

  4. (Analyze) Discuss how foreign exchange availability affects a country’s trade balance.

  5. (Evaluate) Examine the importance of exchange rate stability in maintaining investor confidence.

1.3 Overview of Foreign Exchange Market

(Corporates, Commercial Banks, Exchange Brokers, Central Banks)

Short Answer:

  1. List the participants of the foreign exchange market.

  2. What is the role of commercial banks in forex trading?

Long Answer:

  1. Explain the structure and participants of the foreign exchange market.

  2. Discuss the role of the central bank in maintaining exchange rate stability.

  3. Differentiate between the roles of corporates, brokers, and banks in forex operations.

1.4 Spot, Forward – Concepts and Computation; SWIFT, CHIPS

Short Answer Questions:

  1. Define spot rate and forward rate.

  2. What is SWIFT? What is its role in foreign exchange?

  3. Write a short note on CHIPS.

Long Answer Questions:

  1. Explain the concept of spot and forward transactions with examples.

  2. Discuss the importance of SWIFT and CHIPS in international payment systems.

  3. Compute the forward rate given the following:
    Spot rate = ₹82.50/$; Forward premium = ₹0.30 — Find 1-month forward rate.

1.5 Merchant Rates and Interbank Transactions

Short Answer:

  1. What are merchant rates?

  2. Differentiate between merchant and interbank rates.

Long Answer:

  1. Explain the types of merchant rates with examples.

  2. Discuss the process of interbank foreign exchange transactions.

1.6 Factors Determining Exchange Rates

Short Answer:

  1. List any four factors influencing exchange rates.

  2. What is purchasing power parity theory?

Long Answer:

  1. Discuss the various factors determining exchange rates.

  2. Explain how interest rate differentials and inflation affect exchange rates.

  3. Analyze the impact of government intervention and market speculation on exchange rate movements.

CHAPTER 2: REGULATORY FRAMEWORK OF FOREIGN EXCHANGE IN INDIA

2.1 FEMA 1999: Overview, Objectives, RBI’s Role

Short Answer:

  1. What is FEMA?

  2. State any two objectives of FEMA 1999.

  3. What is the role of RBI under FEMA?

Long Answer:

  1. Explain the key provisions and objectives of FEMA 1999.

  2. Discuss the powers and responsibilities of RBI in foreign exchange regulation.

  3. Compare FEMA with the earlier FERA Act.

2.2 Regulatory Provisions for Resident & Non-Resident Individuals

(LRS, Foreign Currency Accounts, Investments Abroad)

Short Answer:

  1. What is the Liberalized Remittance Scheme (LRS)?

  2. Who are considered “residents” and “non-residents” under FEMA?

  3. What are FCNR accounts?

Long Answer:

  1. Explain the key regulatory provisions for residents and non-residents under FEMA.

  2. Discuss the features and limits of the Liberalized Remittance Scheme (LRS).

  3. Describe different types of foreign currency accounts available in India and abroad.

2.3 Remittances, Deposits, Borrowings by NRIs

Short Answer:

  1. Define NRE and NRO accounts.

  2. What are the permissible modes of remittance by NRIs?

Long Answer:

  1. Explain the rules governing NRI deposits, borrowings, and remittances.

  2. Discuss the RBI guidelines for NRI investments in India.

2.4 Regulatory Provisions for Resident & Non-Resident Entities

(Import/Export, ECB, FPI, FDI, LO/BO/PO)

Short Answer:

  1. What is ECB?

  2. Define FDI and FPI.

  3. What are LO, BO, and PO in foreign entity operations?

Long Answer:

  1. Explain the FEMA regulations related to import and export of goods and services.

  2. Discuss the regulatory framework for ECB, FDI, and FPI in India.

  3. Describe the establishment procedures and compliance for LO/BO/PO of foreign entities.

CHAPTER 3: FOREX INSTITUTIONS, ETHICS & RISK MANAGEMENT

3.1 Role of FEDAI and Ethics in Forex Operations

(Functions, Rules, Crystallization, Interest, Swap Pricing)

Short Answer:

  1. What is FEDAI?

  2. Mention any two functions of FEDAI.

  3. What is swap pricing?

Long Answer:

  1. Explain the role and functions of FEDAI in foreign exchange operations.

  2. Describe the concept of crystallization and interest application in forex transactions.

  3. Discuss how FEDAI ensures uniform practices and ethical standards among authorized dealers.

3.2 Code of Conduct, Ethics & Corporate Governance in Forex Operations

Short Answer:

  1. Define ethics in forex operations.

  2. What is the importance of corporate governance in banking?

Long Answer:

  1. Explain the code of conduct and ethical principles to be followed in forex operations.

  2. Discuss the role of ethics and governance in maintaining credibility in forex markets.

3.3 Compliance Requirements for Authorized Dealers (ADs)

Short Answer:

  1. Who are Authorized Dealers (ADs)?

  2. Mention any two compliance requirements for ADs.

Long Answer:

  1. Discuss the compliance framework prescribed by RBI for Authorized Dealers.

  2. Explain the importance of KYC and anti-money laundering (AML) norms in forex operations.

3.4 Exchange Contracts – Booking, Extension, Cancellation, Swap Costs

Short Answer:

  1. What is an exchange contract?

  2. Define forward contract booking.

Long Answer:

  1. Explain the process of booking, extending, and cancelling foreign exchange contracts.

  2. Discuss the concept of swap cost and its calculation in forex transactions.

3.5 Foreign Exchange Risks and Mitigation Tools

(Transaction, Translation, Economic Exposures; Options, Swaps, Hedging)

Short Answer:

  1. List the types of foreign exchange risks.

  2. Define hedging.

  3. What are options and swaps?

Long Answer:

  1. Explain different types of foreign exchange risks: transaction, translation, and economic.

  2. Discuss the various risk mitigation tools used in forex management.

  3. Analyze the effectiveness of hedging techniques in reducing currency risk.

  4. Compare the advantages and limitations of forward contracts, options, and swaps.

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