Exam 5: The Foreign Exchange Market

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

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.

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.

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.

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?

A confusing "quirk" of international exchange rates occurs when calculating the percentage change in spot rates from one period to another.The percent change in the spot rate from one period to another when quoted using foreign currency terms is always greater than the percent changes quoted when using home currency terms.

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.

A bid is the price in one currency at which a dealer will buy another currency.An ask is the price at which a dealer will sell the other currency.Dealers bid (buy)at one price and ask (sell)at a slightly higher price,making their profit from the spread between the prices.List and explain three reasons/factors that could make the spread small.

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.

TABLE 5.1 Use the table to answer following question(s). -Refer to Table 5.1.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.)

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

Currency trading is a service center rather than a profit center for commercial and investment banks.

Business firms in countries with exchange controls,for example,China (mainland),often must surrender foreign exchange earned from exports to the central bank at the daily fixing price.

The foreign exchange market provides the physical and institutional structure through which three typical functions are accomplish.List and explain three functions of 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/¥

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

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 ________.

Since the global financial crisis of 2008-2009,the Chinese renminbi (yuan)has become the most widely traded currency with the U.S.dollar surpassing the euro,yen,and pound as dollar trading pairs.

In general,NDF markets normally develop for country currencies having large cross-border capital movements,but still subject to convertibility restrictions.

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