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Exam 5: The Foreign Exchange Market

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Question 41

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Banks, and a few nonbank foreign exchange dealers, operate ONLY in the interbank markets.

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Question 42

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Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market?

A) the transfer of purchasing power between countries
B) obtaining or providing credit for international trade transactions
C) minimizing the risks of exchange rate changes
D) All of the above were identified as functions of the foreign exchange market.

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Question 43

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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.

The authors identify two tiers of foreign exchange markets:

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.

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?

________ are agents who facilitate trading between dealers without themselves becoming principals in the transaction.

Which of the following is NOT true regarding nondeliverable forward (NDF) contracts?

Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity? ¥129.87/$ €1) 1226/$ €0) 00864/¥