Exam 6: The Foreign Exchange Market

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

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.

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

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

The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of $0.8909/euro to $0.08709/€. Thus, the dollar has ________ by ________.

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

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

TABLE 6.1 Use the table to answer 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.)

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.

American and British meanings differ for the word billion. Therefore, when traders refer to an American billion, they call it a/an ________.

A ________ transaction in the foreign exchange market requires an almost immediate delivery (typically within two days)of foreign exchange.

Swap and forward transactions account for an insignificant portion of the foreign exchange market.

________ 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 European and American terms for foreign currency exchange are square roots of one another.

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.

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.

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.

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

While trading in foreign exchange takes place worldwide, the major currency trading centers are located in