Exam 11: Foreign Exchange

When conducting foreign exchange trading, commercial banks like Bank of America offer forward contracts.The size of these contracts can be tailored to the needs of an importer or importer and their date of delivery is negotiable.

Arbitrage results in a riskless profit because a trader purchases a currency at a low price and simultaneously resells it at a higher price.

Concerning the spot market for foreign exchange transactions,

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

When the U.S.dollar appreciates against the Mexican peso, the peso becomes ______, and the U.S.exchange rate ______.

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Foreign exchange transactions are generally carried out by smaller banks located in smaller cities throughout the United States.

Assume that you are the Chase Manhattan Bank of the United States, and you have 1 million Swiss francs in your vault that you will need to use in 30 days.Moreover, you need 500,000 British pounds for the next 30 days.You arrange to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today and reverse the transaction at the end of 30 days.You have just arranged a

Concerning foreign exchange trading, bank purchases from and sales to their customers are classified as retail transactions when the amount involved

A foreign currency option is an agreement between a holder (corporation) and a writer (commercial bank) that gives the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

When the dollar depreciates,

The demand curve for British pounds slopes downward because as the dollar ______ British goods become ______ for Americans.Therefore, Americans purchase ______ British goods, and the quantity of pounds demanded decreases.

Arbitrage tends to bring about an identical price for the same currency in different locations and thus results in one market.

In the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.

The offer rate

Concerning the exchange rate index of the U.S.dollar, suppose that the dollar's real exchange rate index rises from 95 to 115.This means that

What foreign exchange transactions do banks typically engage in?

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price within a few days to a couple of years?

In the table above, a change in the ______ will result in a movement along the demand schedule for pounds.

The supply curve of British pounds slopes upward because as the dollar _____ American goods become ______ for the British.Therefore, the British purchase ______ American goods, and the quantity of pounds supplied decreases.