Unit ko samjho · NISM Series I
Introduction to Currency Markets
16 questions is unit mein
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- In the currency pair USD-INR, the US dollar and the Indian rupee are respectively the:
- USD-INR rises from 87.80 to 88.60. Which statement correctly describes the rupee’s movement against the dollar?
- India’s current account deficit widens because foreign-currency payments increase. With other factors unchanged and no offsetting inflows, which immediate pressure is most likely?
- USD-INR is 88.4000 and EUR-USD is 1.0850. Ignoring bid-ask spreads, the implied EUR-INR rate is:
- For a normal interbank USD-INR spot transaction, the value date is ordinarily:
- A dealer buys USD at ₹88.20 and sells USD at ₹88.24. A customer buys USD 25,000 and immediately sells the same amount back at these unchanged rates for the same value date. What is the customer’s result before other charges?
- A dealer buys USD at ₹80.00 and sells USD at ₹80.20. What are its equivalent INR-USD bid and ask, respectively, rounded to six decimal places?
- In a hypothetical economy, the exchange rate responds to market demand and supply. The central bank regularly intervenes to limit volatility but does not defend a fixed parity or band. Which arrangement best fits this description?
- A hypothetical CPI is 120 in a given month and 126 in the same month of the following year, using the same index series. What is the year-on-year inflation rate?
- A dealer needs a direct quotation of Japanese yen for one euro. Which currency pair should the dealer select?
- A dealer quotes EUR-USD at 1.1050–1.1070 and USD-INR at 88.10–88.14, with bid first and ask second. At these quotes, what INR amount buys EUR 1 through USD, rounded to four decimals? Ignore charges.
- Which arrangement best describes the original Bretton Woods exchange-rate system?
- USD-INR rises from 88.00 to 92.40. Measured as the percentage fall in the USD value of one rupee, how much has INR depreciated? Round to two decimals.
- For this question, a spot trade settles on the second joint business day after trade date. The trade is on Monday. Both currency centres are open on Tuesday, Thursday and Friday, but one is closed on Wednesday. What is the value date?
- Which activity group is covered by the US Federal Reserve’s Industrial Production index?
- A dealer quotes EUR-USD at 1.10–1.12 and GBP-USD at 1.25–1.28, with bid first. A customer sells EUR 10,000 and converts the USD proceeds into GBP. How many pounds are received? Ignore charges.
Zaroori ideas
Practice bank se · 1
In the currency pair USD-INR, the US dollar and the Indian rupee are respectively the:
USD is the base and INR provides the price of one unit of that base. Read USD-INR as the number of Indian rupees required for one US dollar. USD is the first currency and is the base. INR is the second currency and is the quotation currency. These roles come from the written pair, not from the trader’s nationality. Remember: Identify the first currency as the base and the second as the quotation currency.
Hint Common mistake: Assuming the Indian rupee must be the base because the question concerns India.
I-001Practice bank se · 2
USD-INR rises from 87.80 to 88.60. Which statement correctly describes the rupee’s movement against the dollar?
Both the direction of the rupee’s movement and the explanation match the higher quote. The cost of one USD increases from ₹87.80 to ₹88.60, an increase of ₹0.80. More rupees must now be exchanged for the same USD 1. The rupee therefore loses value relative to the dollar. Remember: When USD-INR rises, INR weakens against USD.
Hint Common mistake: Treating a rise in the displayed USD-INR number as a rise in the rupee’s value.
I-002Practice bank se · 3
India’s current account deficit widens because foreign-currency payments increase. With other factors unchanged and no offsetting inflows, which immediate pressure is most likely?
Rupee depreciation is consistent with the stated demand pressure and with a higher USD-INR quote. Higher foreign-currency payments create additional demand for foreign currency relative to rupees. The question holds other influences unchanged and excludes offsetting inflows. Under those assumptions, the extra demand puts downward pressure on INR. A weaker INR means more rupees per dollar, so USD-INR faces upward pressure. Actual exchange-rate outcomes can differ when capital flows, expectations or intervention change. Remember: Analyse the currency demand channel and the quotation direction separately.
Hint Common mistake: Treating a current account deficit as a guarantee of depreciation in every real-world situation.
I-003Practice bank se · 4
USD-INR is 88.4000 and EUR-USD is 1.0850. Ignoring bid-ask spreads, the implied EUR-INR rate is:
Multiplying the two quotations gives the rupee cost of one euro. EUR-USD of 1.0850 means EUR 1 equals USD 1.0850. USD-INR of 88.4000 means each USD equals ₹88.4000. EUR-INR = (USD per EUR) × (INR per USD). The USD units cancel. 1.0850 × 88.4000 = ₹95.9140 per EUR. Remember: Write the currency units beside the rates and cancel the shared currency.
Hint Common mistake: Dividing simply because the question asks for a cross rate, without checking units.
I-004Practice bank se · 5
For a normal interbank USD-INR spot transaction, the value date is ordinarily:
This expresses the normal T+2 business-day convention. Under the standard USD-INR spot convention, settlement is ordinarily T+2 business days. T is the trade date. Business days, not calendar days, are counted. Relevant settlement holidays can move the value date. For example, a Monday trade ordinarily settles on Wednesday when both intervening days are valid settlement business days. Remember: Distinguish trade date from value date and count business days for normal spot settlement.
Hint Common mistake: Applying an equity-market settlement cycle to an interbank foreign-exchange transaction.
I-005Practice bank se · 6
A dealer buys USD at ₹88.20 and sells USD at ₹88.24. A customer buys USD 25,000 and immediately sells the same amount back at these unchanged rates for the same value date. What is the customer’s result before other charges?
The customer buys at the higher price and sells at the lower one, losing ₹1,000. The customer pays 25,000 × ₹88.24 = ₹22,06,000 to buy the dollars. The resale receives 25,000 × ₹88.20 = ₹22,05,000. Net cash flow = ₹22,05,000 − ₹22,06,000 = −₹1,000. Equivalently, the ₹0.04 spread multiplied by USD 25,000 is a ₹1,000 cost. Remember: A round trip can cost money even when the displayed two-way quote does not move.
Hint Common mistake: Using the midpoint for both trades or confusing the dealer’s side with the customer’s side.
I-041Practice bank se · 7
A dealer buys USD at ₹80.00 and sells USD at ₹80.20. What are its equivalent INR-USD bid and ask, respectively, rounded to six decimal places?
The inverse bid is the reciprocal of the original ask, and the inverse ask is the reciprocal of the original bid. The original ask of ₹80.20 per USD means that the dealer gives USD 1 for INR 80.20. Its bid for INR 1 is therefore 1 ÷ 80.20 = USD 0.0124688279…, rounded to 0.012469. At the original bid, the dealer pays INR 80.00 for USD 1. Selling INR 1 therefore requires USD 1 ÷ 80.00 = 0.012500. The inverse quote is in USD per INR. Its bid remains below its ask, as a two-way dealing quote should. Remember: When reversing a currency pair, inverse bid = 1/original ask and inverse ask = 1/original bid.
Hint Common mistake: Inverting each number in place without swapping the bid and ask.
I-051Practice bank se · 8
In a hypothetical economy, the exchange rate responds to market demand and supply. The central bank regularly intervenes to limit volatility but does not defend a fixed parity or band. Which arrangement best fits this description?
Market determination with regular intervention and no fixed target is consistent with managed floating. Market demand and supply still influence the rate. Regular intervention does not by itself turn that rate into a fixed peg. The absence of a defended parity or band, combined with active management of volatility, identifies a managed float. The question does not classify any country’s current regime. Remember: Look for a defended exchange-rate target, not merely the presence of central-bank intervention.
Hint Common mistake: Treating every intervention as evidence of a fixed exchange rate.
I-052Practice bank se · 9
A hypothetical CPI is 120 in a given month and 126 in the same month of the following year, using the same index series. What is the year-on-year inflation rate?
The six-point rise is 5% of the starting level of 120. Use inflation = (current CPI − year-earlier CPI) ÷ year-earlier CPI × 100. The rise is 126 − 120 = 6 index points. Dividing by the earlier level gives 6 ÷ 120 × 100 = 5.00%. Index points and percentage changes are different units. Remember: For year-on-year inflation, divide the index change by the comparable index from twelve months earlier.
Hint Common mistake: Confusing an index-point increase with a percentage increase.
I-053Practice bank se · 10
A dealer needs a direct quotation of Japanese yen for one euro. Which currency pair should the dealer select?
EUR identifies the euro and JPY the yen. The pair directly states yen for one euro. The requested currency being priced is one euro, identified by EUR. The amount paid is in Japanese yen, identified by JPY. EUR-JPY therefore supplies the direct quotation requested. Remember: Match both currencies and their order before choosing a quotation.
Hint Common mistake: Selecting a pair merely because it contains one of the required currencies.
I-076Practice bank se · 11
A dealer quotes EUR-USD at 1.1050–1.1070 and USD-INR at 88.10–88.14, with bid first and ask second. At these quotes, what INR amount buys EUR 1 through USD, rounded to four decimals? Ignore charges.
The buyer pays the ask on both purchases. 1.1070 × 88.14 = 97.57098, which rounds to 97.5710. Buying EUR 1 costs USD 1.1070 at the EUR-USD ask. Buying that USD amount with INR costs ₹88.14 per USD at the USD-INR ask. Required INR = 1.1070 USD/EUR × 88.14 INR/USD = 97.57098 INR/EUR. USD cancels from the units. Rounded to four decimals, the cost is ₹97.5710 for EUR 1. A bid-ask spread cannot be avoided by selecting the cheaper side of a quote. Remember: Trace what you buy at each leg. Here both legs require the dealer’s ask.
Hint Common mistake: Multiplying a bid and an ask without checking the direction of the two currency exchanges.
I-077Practice bank se · 12
Which arrangement best describes the original Bretton Woods exchange-rate system?
The system used fixed but adjustable parities centred on the dollar, which was linked to gold. Member currencies had official parities in relation to the dollar, and the dollar had an official link to gold. Parities were not ordinary freely floating prices. However, the framework allowed changes in specified circumstances, so fixed does not mean permanently unchangeable. Remember: Remember Bretton Woods as dollar-centred and fixed but adjustable.
Hint Common mistake: Confusing fixed-but-adjustable parities with either free floating or an irreversible currency peg.
I-078Practice bank se · 13
USD-INR rises from 88.00 to 92.40. Measured as the percentage fall in the USD value of one rupee, how much has INR depreciated? Round to two decimals.
This answer measures the fall in the reciprocal quote relative to its original USD-per-INR value. The USD value of ₹1 changes from 1 ÷ 88 to 1 ÷ 92.40. Percentage depreciation = [1 − (1 ÷ 92.40) ÷ (1 ÷ 88)] × 100 = (1 − 88 ÷ 92.40) × 100. This equals 4.76190476…%, or 4.76%. The 5% rise in the INR-per-USD quote uses a different denominator. Remember: Invert the quote before measuring the percentage change in the other currency.
Hint Common mistake: Assuming a 5% rise in one quotation must mean an exactly 5% fall in its reciprocal.
I-101Practice bank se · 14
For this question, a spot trade settles on the second joint business day after trade date. The trade is on Monday. Both currency centres are open on Tuesday, Thursday and Friday, but one is closed on Wednesday. What is the value date?
Thursday is the second day after the trade on which both currency centres are open. Monday is the trade date and is not counted as a day after that date. Tuesday is joint business day 1. Wednesday is excluded because both centres are not open. Thursday is joint business day 2 and is therefore the value date. Remember: Apply the stated business-day calendar before assigning the settlement date.
Hint Common mistake: Reading T+2 as two calendar days or counting the trade date as day 1.
I-102Practice bank se · 15
Which activity group is covered by the US Federal Reserve’s Industrial Production index?
These are the activity groups identified in the Federal Reserve’s description of the index. The Industrial Production index measures real output in manufacturing, mining, and electric and gas utilities. It does not represent every component of GDP, household retail spending or stock-market performance. A currency analyst must not substitute one measure for another. Remember: Check what an economic indicator measures before drawing an inference from it.
Hint Common mistake: Interpreting an industrial-output release as a complete GDP report or an equity-price index.
I-126Practice bank se · 16
A dealer quotes EUR-USD at 1.10–1.12 and GBP-USD at 1.25–1.28, with bid first. A customer sells EUR 10,000 and converts the USD proceeds into GBP. How many pounds are received? Ignore charges.
The EUR sale earns USD at 1.10 per EUR, and those dollars buy pounds at USD 1.28 per GBP. Selling EUR uses the dealer’s EUR-USD bid. USD received = 10,000 × 1.10 = USD 11,000. The customer then buys GBP at the GBP-USD ask of USD 1.28 per GBP. GBP received = 11,000 ÷ 1.28 = GBP 8,593.75. The synthetic EUR-GBP bid is therefore 1.10 ÷ 1.28 = 0.859375 GBP per EUR. Remember: Trace each conversion separately. Selling EUR and buying GBP uses the EUR bid divided by the GBP ask.
Hint Common mistake: Multiplying cross rates automatically, or choosing both bids without checking which currency is being purchased.
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