All Free Management Sciences MCQs with Answers

• A. interest rate parity theorem
• B. appreciation parity theorem
• C. domestic parity theorem
• D. foreign interest parity theorem

Explanation: Interest rate parity links domestic and foreign interest rates with the expected or forward exchange-rate movement, preventing risk-free…

• A. regulations
• B. prudent individuals
• C. smaller size of assets
• D. all of the above

Explanation: Foreign-exchange exposure may be smaller because of regulatory limits, cautious risk management, and smaller asset bases compared with…

• A. largest foreign exchange trading
• B. smaller foreign exchange trading
• C. largest bond holder
• D. smaller bond holder

Explanation: JPMorgan Chase is one of the largest foreign-exchange dealers in the United States, with substantial global currency-trading operations.

• A. net long in currency
• B. net short in currency
• C. net surplus in assets
• D. net surplus in liabilities

Explanation: When assets denominated in a currency exceed liabilities in that currency, the institution has a net long position.

• A. domestic rates
• B. forward and spot exchange rates
• C. forward rate
• D. spot rates

Explanation: Interest-rate parity states that the interest-rate differential between two countries corresponds to the differential between the forward…

• A. law of similar mortgage rate
• B. law of one type manufacturing
• C. law of similar labor rules
• D. law of one price

Explanation: The law of one price states that identical goods should sell for the same price in different markets after allowing for exchange rates and…

• A. net surplus in assets
• B. net surplus in liabilities
• C. net long in currency
• D. net short in currency

Explanation: When liabilities in a currency exceed assets, the institution has a net short position in that currency.

• A. greater liquidity of assets
• B. greater volatility of rates
• C. lesser volatility of rates
• D. lesser liquidity of assets

Explanation: Larger fluctuations in the foreign-exchange portfolio value indicate greater exposure to exchange-rate movements, which is associated with…

• A. trade services
• B. investment services
• C. agent services
• D. commercial services

Explanation: When a financial institution facilitates commercial transactions or manages investment positions on behalf of clients, it is performing an…

• A. liquidated power parity
• B. purchasing power parity
• C. selling power parity
• D. volatile power parity

Explanation: Purchasing power parity links exchange-rate changes to differences in inflation rates between countries.

• A. zero restrictiveness
• B. negative restriction
• C. increase restrictiveness
• D. decrease restrictiveness

Explanation: A higher equilibrium interest rate generally makes credit less restrictive because lenders have a greater incentive to supply funds…

• A. cost of loanable funds is high
• B. cost of loanable fund is low
• C. equilibrium is zero
• D. equilibrium is negative

Explanation: Companies prefer internally generated funds when external borrowing is relatively expensive or difficult to obtain.

• A. durable goods
• B. non-durable goods
• C. equilibrium goods
• D. non-equilibrium goods

Explanation: Cars and major home appliances provide services over several years and are not consumed in one use, so they are classified as durable…

• A. global surplus
• B. national debt
• C. international debt
• D. global debt

Explanation: A budget deficit is a yearly shortfall, while the accumulation of past deficits forms the government’s outstanding national debt.

• A. long term fixed assets
• B. short term fixed assets
• C. short term working capital
• D. long term working capital

Explanation: Plant and equipment are used for production over multiple accounting periods and are not normally converted into cash through routine…

• A. short-term funds
• B. long-term funds
• C. surplus of funds
• D. deficit of funds

Explanation: An interest rate above equilibrium encourages saving and lending while discouraging borrowing, so the quantity of funds supplied exceeds…

• A. shift left
• B. shift right
• C. upside movement
• D. downside movement

Explanation: A rise in the interest rate causes movement along the existing supply-of-funds curve, not a shift of the curve.

• A. upside
• B. lower
• C. higher
• D. zero

Explanation: A decrease in demand for loanable funds reduces competition among borrowers, so lenders charge a lower borrowing cost.

• A. surplus of funds
• B. deficit of funds
• C. short-term funds
• D. long-term funds

Explanation: When the interest rate is below equilibrium, borrowers demand more funds than lenders are willing to supply, creating a deficit or…

• A. remain constant
• B. fluctuate
• C. decreases
• D. increases

Explanation: Lower financial-security risk encourages lenders to supply more funds, shifting the supply curve rightward and downward.