The 'Covered Interest Parity' condition uses which instrument to eliminate exchange rate risk? MCQ with Answer and Explanation

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The 'Covered Interest Parity' condition uses which instrument to eliminate exchange rate risk?

A. currency swap

B. credit default swap

C. forward contract

D. stock option

Answer: Option C

Solution (By JKSSB Mock Tests)

Covered interest parity involves a forward contract to hedge exchange rate risk.

This question belongs to: Economy GK Economy Set 1

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Question #1

Which of the following is a type of foreign capital inflow?

A. Foreign direct investment, portfolio investment and external commercial borrowings

B. Domestic bank deposits of residents

C. Only government tax revenue

D. Only domestic equity issuance

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Correct Answer: Option A

Explanation:
Foreign capital inflows include FDI, FPI, external commercial borrowings, trade credit and other external liabilities.

This question belongs to: Economy GK Economy Set 1

Question #2

Which of the following is not one of the eight core industries?

A. Crude oil

B. Natural gas

C. Textiles

D. Coal

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Correct Answer: Option C

Explanation:
Textiles is not among the eight core industries; they are coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity.

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following is NOT a type of cost in the short run?

A. Total cost

B. Fixed cost

C. Variable cost

D. Sunk cost as the only long-run cost

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Correct Answer: Option D

Explanation:
In the short run, costs are classified as fixed, variable and total. Sunk costs are costs that have already been incurred and cannot be recovered, relevant in both short and long run decisions.

This question belongs to: Economy GK Economy Set 1

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