A list of objective questions with answers to help students to assess their expertise in

this area of treasury and forex management:

1. Question: What is Treasury Management? Answer: Treasury Management
involves the efficient management of an organization's financial assets,
liabilities, and cash flows to optimize liquidity, minimize risk, and achieve
financial goals.
2. Question: Define Forex Management. Answer: Forex Management, also known
as Foreign Exchange Management, refers to the management of foreign
currency transactions and exposure to exchange rate fluctuations.
3. Question: What are the objectives of Treasury Management? Answer: The
objectives of Treasury Management include ensuring sufficient liquidity,
minimizing financial risk, optimizing returns on investments, and managing
cash flows efficiently.
4. Question: What are the key functions of a Treasury Department? Answer: The
key functions of a Treasury Department include cash management, liquidity
planning, risk management, capital budgeting, and financial reporting.
5. Question: Explain the concept of Cash Management. Answer: Cash
Management involves managing cash flows, cash balances, and short-term
investments to ensure that an organization has enough liquidity to meet its
financial obligations.
6. Question: What is Liquidity Management? Answer: Liquidity Management is
the process of maintaining an appropriate level of liquidity to meet
operational needs and financial emergencies while minimizing excess cash
holdings.
7. Question: Define Foreign Exchange Risk. Answer: Foreign Exchange Risk is the
risk of financial losses due to fluctuations in exchange rates when conducting
international transactions.
8. Question: How do companies hedge against Foreign Exchange Risk? Answer:
Companies can hedge against Foreign Exchange Risk using financial
instruments such as forward contracts, currency swaps, and currency options.
9. Question: What is a Forward Contract? Answer: A Forward Contract is an
agreement to buy or sell a specific amount of foreign currency at a
predetermined exchange rate for future delivery.
10. Question: How does Currency Swap work? Answer: Currency Swap involves
the exchange of principal and interest payments in one currency for the same
in another currency, helping parties manage their currency exposure.
11. Question: Explain the concept of Currency Option. Answer: Currency Option is
a financial derivative that gives the holder the right, but not the obligation, to
buy or sell a specific amount of foreign currency at a predetermined exchange
rate.
12. Question: What is the role of a Forex Dealer? Answer: A Forex Dealer is a
financial institution or entity that facilitates foreign exchange transactions for
clients and manages currency risk.
13. Question: Define the term "Exchange Rate." Answer: An Exchange Rate is the
rate at which one currency can be exchanged for another currency.
14. Question: How do changes in Exchange Rates affect importers and exporters?
Answer: Changes in Exchange Rates can impact importers by affecting the
cost of imported goods and exporters by influencing the competitiveness of
their products in foreign markets.
15. Question: Explain the concept of Currency Depreciation. Answer: Currency
Depreciation occurs when a country's currency loses value compared to other
currencies, leading to higher import costs and increased export
competitiveness.
16. Question: What is the difference between Currency Depreciation and Currency
Appreciation? Answer: Currency Depreciation refers to a decrease in the value
of a currency, while Currency Appreciation refers to an increase in its value.
17. Question: Define the term "Balance of Payments." Answer: Balance of
Payments is a record of all international transactions, including imports,
exports, and financial flows, between a country and the rest of the world over
a specific period.
18. Question: How do companies manage transaction exposure to Foreign
Exchange Risk? Answer: Companies manage transaction exposure by using
hedging techniques, such as forward contracts or currency options, to protect
against adverse exchange rate movements.
19. Question: What is the difference between Transaction Exposure and
Translation Exposure? Answer: Transaction Exposure relates to the impact of
exchange rate fluctuations on specific transactions, while Translation
Exposure refers to the impact on the consolidated financial statements of
multinational companies.
20. Question: How can companies manage Translation Exposure? Answer:
Companies can manage Translation Exposure through hedging or accounting
techniques, such as using forward contracts or adopting appropriate
accounting methods.
21. Question: What is Economic Exposure? Answer: Economic Exposure is the risk
of financial losses resulting from changes in exchange rates affecting the
present and future cash flows of a company's operations.
22. Question: Explain the concept of Arbitrage in Forex Management. Answer:
Arbitrage refers to the practice of taking advantage of price differences in
different markets to make risk-free profits.
23. Question: What is Speculation in Forex Management? Answer: Speculation
involves making risky financial transactions in the foreign exchange market to
profit from anticipated changes in exchange rates.
24. Question: Define the term "Interest Rate Parity." Answer: Interest Rate Parity
is an economic theory that suggests the difference in interest rates between
two countries is equal to the forward premium or discount on their currencies.
25. Question: How does Interest Rate Parity influence Forward Exchange Rates?
Answer: Interest Rate Parity helps determine Forward Exchange Rates as it
indicates the relationship between interest rates and forward premiums or
discounts.
26. Question: Explain the concept of "Covered Interest Arbitrage." Answer:
Covered Interest Arbitrage is a strategy where investors use forward contracts
to take advantage of interest rate differentials between two currencies.
27. Question: What is the role of a Forex Market Maker? Answer: A Forex Market
Maker is a financial institution or dealer that provides liquidity to the foreign
exchange market by offering bid and ask prices for currency pairs.
28. Question: Define the term "Currency Pegging." Answer: Currency Pegging is a
fixed exchange rate system in which a country's currency is tied to another
currency or a basket of currencies.
29. Question: What is the difference between a Fixed Exchange Rate and a
Floating Exchange Rate? Answer: A Fixed Exchange Rate remains constant
and is set by the government or central bank, while a Floating Exchange Rate
is determined by market forces.
30. Question: How do Central Banks intervene in the Forex Market? Answer:
Central Banks intervene in the Forex Market by buying or selling their
domestic currency to influence its value and stabilize exchange rates.
31. Question: Define the term "Foreign Exchange Reserves." Answer: Foreign
Exchange Reserves are the foreign currencies held by a country's central
bank to maintain stability in the foreign exchange market and meet
international obligations.
32. Question: How do Forex Management decisions impact a company's
profitability? Answer: Forex Management decisions can impact a company's
 profitability through gains or losses on foreign currency transactions and the
influence of exchange rates on international sales.
33. Question: Explain the concept of the "Carry Trade" in Forex Management.
Answer: Carry Trade is a strategy where investors borrow funds in a low-
interest-rate currency to invest in higher-yielding assets in another currency.
34. Question: What are the key considerations in formulating a Forex
Management policy? Answer: Key considerations include assessing foreign
exchange exposure, setting risk tolerance levels, and choosing appropriate
hedging strategies.
35. Question: Define the term "Capital Account Convertibility." Answer: Capital
Account Convertibility refers to the freedom to convert a country's currency
into foreign currencies for investments, acquisitions, and other capital
transactions.