Exam 5: The Foreign Exchange Market

Since the global financial crisis of 2008-2009, the Chinese renminbi (yuan) has become the most widely traded currency with the U.S. dollar surpassing the euro, yen, and pound as dollar trading pairs.

Swap and forward transactions account for an insignificant portion of the foreign exchange market.

The top three currency pairs traded with the U.S. dollar are:

Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.

A German firm is attempting to determine the euro/pound exchange rate and has the following exchange rate information: USD/pound = $1.5509/£ and the USD/euro rate = $1.2194/€. Therefore, the euro/pound rate must be:

The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of 0.8909/€ to $0.8709/€. Thus, the dollar has ________ by ________.

A/an ________ quote in the United States would be foreign units per dollar, while a/an ________ quote would be in dollars per foreign currency unit.

What are some of the reasons central banks and treasuries enter the foreign exchange markets, and in what important ways are they different from other foreign exchange participants?

Banks, and a few nonbank foreign exchange dealers, operate ONLY in the interbank markets.