Exam 12: The Foreign Exchange Market

There is no limit for domestic central bank intervention.

The market where currencies may be bought and sold for delivery in a future period is known as

The most common type of transaction in the foreign exchange market is a

In the case where the spot and forward rates are equal,the currency is said to be selling

A gain can be made by the holder of a call option when the current exchange rate

If the spot exchange rate between dollars and pounds is equal to 2 dollars for one pound and the forward exchange rate equals 2.10 dollars for one pound,then

Both a parallel market and a black market are free markets permitted to coexist with the official market.

An important feature of a ________ is that the holder has the right,but not the obligation,to buy or sell currency.

The essential feature of a ________ is that it immediately fixes the rate at which a specified amount of one currency is to be delivered in exchange for a specific amount of another at a future date.

Today's forward rate must equal the future spot rate.

Briefly answer the following questions. (a) What is a foreign currency option? Is there any difference between a European and American option? (b) Why might you prefer an option over a futures or forward contract? (c) When can a gain be made by the holder of a call option? A put option?

In the ________ markets all profits and losses must be settled on a daily basis.

In general,the lower the exercise price relative to the current spot rate price of the currency,the more valuable

Suppose in Zurich £/$ = 0.5,while in New York SF/$ = 2.5,but in London £/SF = 0.1. (a) Is there any arbitrage profit that could be made with a triangular arbitrage action? Describe an example of how such a profit may be earned. (b) What would you guess about the relationship between the dollar rates and cross-rates after arbitrageurs notice this profit opportunity?

The U.S.and the Canadian currencies are the only two in the world that are called "dollars."

If the bank is selling euros for $0.89,then what is the implied euro price of the dollar?

The most common tool of analysis in international finance for measuring the average value of a currency relative to several other currencies is

Which of the following is not true regarding "exchange rate indexes?"

In the case of an appreciating domestic currency,central banks often sell foreign currencies in exchange for domestic currency to stop the appreciation.

The exchange rate is kept the same across geographically-separate markets by