Exam 5: The Foreign Exchange Market

A contract to deliver dollars for euros in six months is both "buying euros forward for dollars" and "selling dollars forward for euros."

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

If the direct quote for a U.S.investor for British pounds is $1.43/£,then the indirect quote for the U.S.investor would be ________ and the direct quote for the British investor would be ________.

________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.

________ are NOT one of the three categories reported for foreign exchange.

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

Which of the following is NOT true regarding nondeliverable forward (NDF)contracts?

A ________ transaction in the foreign exchange market requires an almost immediate delivery (typically within two days)of foreign exchange.

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.

It is characteristic of foreign exchange dealers to:

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.

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

A spot transaction in the interbank market for foreign exchange would typically involve a two-day delay in the actual delivery of the currencies,while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait.

Nondeliverable Forwards were originally envisioned as a method of currency speculation,but it is now estimated that 70% of NDFs are trading for hedging purposes.

A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

From the viewpoint of a British investor,which of the following would be a direct quote in the foreign exchange market?

Since in the U.S.the home currency is the dollar and the foreign currency is the euro,in New York USD 1.2174 = EUR 1.00 would be a direct quote on the euro and an indirect quote on the dollar.

Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.

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

The ________ is a derivative forward contract that was created in the 1990s.It has the same characteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S.dollars and the foreign currency involved in the transaction is not delivered.