Identifying the Incorrect Statement on Currency Markets
The question asks to identify the incorrect statement among the given options related to foreign exchange markets and contracts. Let's analyze each statement:
Statement 1: Broken-Date Contract Analysis
Statement: Broken-date contract is a full - month forward contract.
Analysis: This statement is incorrect. A broken-date contract, also known as an odd-date contract, is a forward contract with a maturity date that does not fall on a standard, regular date (like the end of a specific month or a standard period like 1, 3, or 6 months). It is customized to meet specific client needs. A "full-month" forward contract typically refers to a contract with a standard maturity, such as exactly one month. Therefore, a broken-date contract is not synonymous with a full-month forward contract.
Statement 2: Currency Arbitrage Verification
Statement: Currency arbitrage refers to making profit by buying a currency cheap in one market and selling it dear in the other market at a particular point of time.
Analysis: This statement is correct. Currency arbitrage involves exploiting tiny price differences for the same currency in different markets simultaneously to make a risk-free profit.
Statement 3: Currency Futures Market Definition
Statement: Currency Futures Market refers to organised foreign exchange market where a fixed amount of a currency is exchanged on a fixed maturity date in the pit.
Analysis: This statement is correct. It accurately describes key features of a currency futures market: it's organized, involves standardized contracts (fixed amount, fixed maturity date), and historically involved trading in specific locations ('pits').
Statement 4: Currency Options Market Explanation
Statement: Currency Options Market refers to market for the exchange of currency where the option buyer enjoys the privilege of not exercising the option if the rate is not favourable.
Analysis: This statement is correct. It correctly defines a core characteristic of options: the buyer has the right (privilege) but not the obligation to execute the contract, providing flexibility against unfavorable market movements.
Conclusion
Based on the analysis, the incorrect statement is the first one, defining a broken-date contract as a full-month forward contract.
Important Questions from Foreign exchange market
In which year did the companies IBM and Coca Cola shut down their operations for not being able to comply with the Foreign Exchange Regulation Act that mandated foreign investors cannot own over 40% in Indian enterprises?
Identify the drivers for increased Foreign Institutional Investment flows in Indian stock markets in recent times
A. Covid-19 pandemic driven liquidity outflows from the western capital markets
B. Geopolitical supply chain relocations
C. Increased India weightage in MSCI Emerging Market Index
D. Steep decline in interest rates in large market friendly economies
E. Favourable risk-reward ratios in Indian stock markets
Choose the correct answer from the options given below:
Which of the following constitutes Foreign Direct Investment?
Arrange the following modes of entry in foreign markets starting with the mode of entry having least commitment, risk, control and profit potential:
(A) Company hires a local manufacturer to produce the product.
(B) Company starts exports working through domestic export agents and exports management companies.
(C) Company joins hands with local investor and forms a company in which both share ownership and control.
(D) Company starts export using domestic export department and overseas sales branch.
(E) Company offers a complete brand concept and operating system to an investor in return of certain fee.
Choose the correct answer from the options given below:
Given below are two statements: One is labelled as Assertion A and the other is labelled as Reason R.
Assertion (A): Sustained current account surplus encourages the government to liberalize imports and capital movements.
Reasons (R): The current account and balance of payments positions of a country can significantly influence its economic policies.
In the light of the above statements, choose the correct answer from the options given below:
