CAIIB · Advanced Business & Financial Management · Module B — Advanced Concepts of Financial Management
CAIIB ABFM Unit 10 — Capital Budgeting for International Project Investment Decisions: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 29 October 2026 · Paper III of the December 2026 cycle (Sunday 13 December 2026)
This is the free practice page for CAIIB ABFM Unit 10 — Capital Budgeting for International Project Investment Decisions (Module B — Advanced Concepts of Financial Management). The CAIIB Mock Centre holds 133 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five practice questions with explanations, and the traps that cost marks.
ABFM · Module B133 MCQs in the Mock Centre5 free belowPaper on 13 December
Key facts examiners test from this unit
Foreign investment analysis: cash flows and currency rates — projects abroad use the same methods as at home, but cash flows are in foreign currency and rates move.
International portfolio investment — investing in foreign securities diversifies risk, within LRS limits, but needs asset allocation and currency hedging.
Risk, return and pricing models — foreign investment adds exchange and country risk; CAPM and APT price the risk.
Changed since the textbook
LRS: USD 2,50,000 a year, with TCS above ₹10 lakh (1 April 2025). Resident individuals may remit up to USD 2,50,000 per financial year under the Liberalised Remittance Scheme. Tax collected at source (TCS) on remittances for investment and other purposes is nil up to ₹10 lakh a year and 20% above it; the threshold rose from ₹7 lakh with effect from 1 April 2025. From 1 April 2026 the provision sits in section 394 of the Income-tax Act, 2025, replacing section 206C(1G) of the 1961 Act. Source: 1 Finance guide to LRS limits and TCS
New overseas investment framework: ODI and OPI limits (22 August 2022). The Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022 and RBI's Overseas Investment Directions, 2022, effective 22 August 2022, replaced the earlier ODI regime. An Indian entity may make overseas direct investment under the automatic route with a financial commitment of up to 400% of its net worth as per its last audited balance sheet; a commitment above USD 1 billion in a financial year needs RBI's prior approval. Source: DPNC Global summary
5 free practice questions — tap an option
Five practice questions from this unit. Answers lock on the first tap, exactly as in the exam, and an explanation opens underneath. The Mock Centre has all 133 questions on this unit, from easy to tough, with caselets and key-in numericals, why every other option is wrong and the exam tip — and tracks your score and revision dates.
Question 1 of 5
What is the spot rate?
Why (d): The textbook says converting local currency into foreign currency at the prevailing rate is done at the spot rate. (a) is wrong: The spot rate is the current rate. (b) is wrong: That is the forward rate. (c) is wrong: It is an interest rate, not an exchange rate.
Question 2 of 5
A company must decide whether to (i) build a plant to run for 15 years, (ii) raise its stock of raw materials for the festive season and (iii) give a dealer 30 days' credit. Which of these calls for capital budgeting?
Why (a): Capital budgeting evaluates long-term investment decisions, such as fixed assets whose benefits run over many years. Stock and credit decisions are short-term working capital matters. (b) is wrong: Size alone does not make a decision long-term. (c) is wrong: Decisions that affect cash soonest are working capital matters. (d) is wrong: Short-term uses of funds are managed as working capital.
Question 3 of 5
Under the home currency approach, how are an overseas project's cash flows treated?
Why (c): The textbook says all cash flows are converted into rupees at the actual or estimated spot rate at the time of the flow and discounted at the domestic risk-adjusted rate. (a) is wrong: The home approach converts every flow. (b) is wrong: That is the foreign currency approach. (d) is wrong: Later flows use expected rates.
Question 4 of 5
Under the foreign currency approach, when is the project acceptable by IRR?
Why (b): The textbook says that if the IRR exceeds the foreign risk-adjusted rate found in step 1, the proposal is acceptable. (a) is wrong: The foreign rate is the benchmark. (c) is wrong: A rate of return is not an exchange rate. (d) is wrong: It reverses the rule.
Question 5 of 5
A project's cash flows are −₹100 lakh now, +₹230 lakh in year 1 and −₹132 lakh in year 2. What happens if it is judged by IRR?
Why (a): Each change in the sign of the cash flows can add a root to the NPV equation: the pattern −, +, − changes sign twice, and NPV is zero at both 10% and 20%, so IRR gives no single answer and NPV at the cost of capital should decide. A negative undiscounted total does not rule out an IRR. (b) is wrong: NPV is nil at 10% and at 20%, although the undiscounted total is negative. (c) is wrong: Both sign changes add a root; 10% also gives nil NPV. (d) is wrong: Both sign changes count; 20% also gives nil NPV.
0 of 5 answered.
Traps in this unit
Higher Indian interest means the foreign currency is at a forward premium.
LRS is a dollar limit, not a rupee limit.
Compound the market and currency returns; do not add them.
Practise all 133 questions on Unit 10. The free CAIIB demo opens Units 1–2 of every paper with full explanations; the ABFM Online Mock Centre unlocks all 4,000+ ABFM questions, the full-length papers with caselets and key-ins, module mocks and Smart Revision for 18 months (₹1,499).
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