Exam 5: The Foreign Exchange Market

TABLE 5.1 Use the table to answer the following question(s). -Refer to Table 5.1. The one-month forward bid price for dollars as denominated in Japanese yen is

Which of the following is NOT true regarding the market for foreign exchange?

________ 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.

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.

Daily trading volume in the foreign exchange market was about ________ per ________ in 2007.

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.

In a standard forward terminology, "Pips" stands for

Major exceptions to using European terms in foreign exchange include

The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of $0.8909/euro to $0.8709/euro. Thus, the dollar has ________ by ________.

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

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

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.

The authors identify two tiers of foreign exchange markets

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.

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

________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.

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

According to the Bank for International Settlements,

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 ________.

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