Exam 6: The Foreign Exchange Market

When the cross rate for currencies offered by two banks differs from the exchange rate offered by a third bank,a triangular arbitrage opportunity exists.

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.

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

TABLE 6.1 Use the table to answer the following question(s). -Refer to Table 6.1.The ask price for the two-year swap for a British pound is ________.

Foreign exchange quotes are often confusing.Define these terms and then identify the types of quotes that follow.Direct quote,indirect quote,American terms,European terms EUR0.686 = USD1,this quote found in Frankfurt,Germany USD1.4577 = EUR1.0,this quote found in San Francisco,California

TABLE 6.1 Use the table to answer the following question(s). -Refer to Table 6.1.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.)

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.

________ 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.

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

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.

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.

The primary motive of foreign exchange activities by most central banks is profit.

The foreign exchange market has expanded significantly in the last 20 years.What is the volume of swap,forward,and spot transactions in the market as of the most recent survey data (April 2010)?

The three currencies that dominate foreign exchange trading are ________.

The following is an example of an American term foreign exchange quote:

Although the "big three" (dollar,euro,and yen)continue to dominate global trades,it will probably not be long before a fourth,not yet on the map-the Chinese renminbi-will move into greater prominence.

TABLE 6.1 Use the table to answer the following question(s). -Refer to Table 6.1.The one-month forward bid price for dollars as denominated in Japanese yen is ________.

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

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

A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange.