Exam 5: The Foreign Exchange Market

________ are agents who facilitate trading between dealers without themselves becoming principals in the transaction.

A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.

Dealers in the foreign exchange departments of large international banks often function as "market makers." Such dealers stand willing at all times to buy and sell those currencies in which they specialize and thus maintain an "inventory" position in those currencies.

Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market?

In general, NDF markets normally develop for country currencies having large cross-border capital movements, but still subject to convertibility restrictions.

The greatest volume of daily foreign exchange transactions are:

A bid is the price in one currency at which a dealer will buy another currency. An ask is the price at which a dealer will sell the other currency. Dealers bid (buy) at one price and ask (sell) at a slightly higher price, making their profit from the spread between the prices. List and explain three reasons/factors that could make the spread small.

The low level of interest rates around the globe in recent years, combined with slowing economic growth and new debt issuances, has had a dampening impact on the swap market.

While trading in foreign exchange takes place worldwide, the major currency trading centers are located in:

________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.

NDFs are traded and settled inside the country of the subject currency, and therefore are within the control of the country's government.

The greatest amount of foreign exchange trading takes place in the following three cities:

Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.

Use the table to answer following question(s). -Refer to Table 5.1. According to the information provided in the table, the 6-month yen is selling at a forward ________ of approximately ________ per annum. (Use the mid rates to make your calculations.)

The foreign exchange market provides the physical and institutional structure through which three typical functions are accomplish. List and explain three functions of the foreign exchange market.

A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.

Use the table to answer following question(s). -Refer to Table 5.1. The ask price for the two-year swap for a British pound is:

Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity? ¥129.87/$ €1)1226/$ €0)00864/¥

In the foreign exchange market, ________ seek all of their profit from exchange rate changes while ________ seek to profit from simultaneous exchange rate differences in different markets.