Exam 5: The Foreign Exchange Market

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?

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Question 1

Correct Answer:

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Central banks and treasuries enter the foreign exchange market to acquire/spend their own foreign exchange reserves and to influence the price at which their own currency is traded. Unlike other market participants, they are not profit oriented. Instead, they may willingly take a loss if they think it is in their best national interest.

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.

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(True/False)

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Question 2

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True

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.

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Question 3

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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 .

(Multiple Choice)

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Question 4

The Continuous Linked Settlement system (CLS) links with the Real-Time Gross Settlement (RTGS) systems and is expected to eventually result in same-day settlement rather than the current two-day settlement required for foreign exchange spot market transactions.

(True/False)

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Question 5

A foreign exchange is the price of one currency expressed in terms of another currency. A foreign exchange is a willingness to buy or sell at the announced rate.

(Multiple Choice)

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Question 6

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

(Multiple Choice)

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Question 7

Which of the following may be participants in the foreign exchange markets?

(Multiple Choice)

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Question 8

Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity? ¥129.87/$ Euro 1.1226/$ Euro 0.00864/¥

(Multiple Choice)

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Question 9

Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is level throughout the 24-hour day.

(True/False)

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Question 10

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

(True/False)

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Question 11

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

(Multiple Choice)

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Question 12

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

(Multiple Choice)

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Question 13

Daily trading volume of foreign exchange had actually decreased in 2004 from the levels reported in 2001.

(True/False)

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Question 14

Most transactions in the interbank foreign exchange trading are primarily conducted via telecommunication techniques and little is conducted face-to-face.

(True/False)

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Question 15

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

(Multiple Choice)

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Question 16

Given the following quotations (where the dollar is the home currency), what is the annualized forward premium (discount) on the U.S. dollar? Spot rate: $1.305/euro 6-month forward rate: $1.335/euro

(Multiple Choice)

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Question 17

The authors identify two tiers of foreign exchange markets:

(Multiple Choice)

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Question 18

The greatest amount of foreign exchange trading takes place in the following three cities:

(Multiple Choice)

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Question 19

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

(Multiple Choice)

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Question 20

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Exam 5: The Foreign Exchange Market

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?

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.

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.

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 ________.

The Continuous Linked Settlement system (CLS) links with the Real-Time Gross Settlement (RTGS) systems and is expected to eventually result in same-day settlement rather than the current two-day settlement required for foreign exchange spot market transactions.

A foreign exchange ________ is the price of one currency expressed in terms of another currency. A foreign exchange ________ is a willingness to buy or sell at the announced rate.

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

Which of the following may be participants in the foreign exchange markets?

Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity? ¥129.87/$ Euro 1.1226/$ Euro 0.00864/¥

Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is level throughout the 24-hour day.

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

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

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

Daily trading volume of foreign exchange had actually decreased in 2004 from the levels reported in 2001.

Most transactions in the interbank foreign exchange trading are primarily conducted via telecommunication techniques and little is conducted face-to-face.

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

Given the following quotations (where the dollar is the home currency), what is the annualized forward premium (discount) on the U.S. dollar? Spot rate: $1.305/euro 6-month forward rate: $1.335/euro

The authors identify two tiers of foreign exchange markets:

The greatest amount of foreign exchange trading takes place in the following three cities:

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

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

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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.

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 .

A foreign exchange is the price of one currency expressed in terms of another currency. A foreign exchange is a willingness to buy or sell at the announced rate.