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Exam 5: The Foreign Exchange Market

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Question 31

Multiple Choice

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

A) $20/£
B) €0.85/$
C) ¥100/€
D) none of the above

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Question 32

Multiple Choice

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A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________.

A) buying dollars forward; buying pounds forward
B) selling pounds forward; selling dollars forward
C) selling pounds forward; buying dollars forward
D) selling dollars forward; buying pounds forward

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Question 33

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Dealers in the foreign exchange departments of large international banks often function as "market makers." Such dealers stand willing at all times to buy and sell those currencies in which they specialize and thus maintain an "inventory" position in those currencies.

The greatest volume of daily foreign exchange transactions are:

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

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

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.

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

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.

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

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:

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.

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

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

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.)

________ 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.

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.

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

For individuals and firms involved in the import and export of goods and services, using the foreign exchange market is necessary, but incidental, to their underlying commercial or investment purpose.

A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.