Exam 5: The Foreign Exchange Market

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.

The United Kingdom and United States together make up nearly ________ of daily currency trading.

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

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

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward 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 ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

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:

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

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.

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

Daily trading volume in the foreign exchange market was about ________ per ________ in 2015.

Foreign exchange markets are a relatively recent phenomenon, beginning with the agreement at Bretton Woods.

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.

The four currencies that constitute about 80% of all foreign exchange trading are:

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

The ________ is the mechanism by which participants transfer purchasing power between countries, obtain or provide credit for international trade transactions, and minimize exposure to the risks of exchange rate changes.

TABLE 5.1 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:

TABLE 5.1 Use the table to answer following question(s). -Refer to Table 5.1. The current spot rate of dollars per pound as quoted in a newspaper is ________ or ________.

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.