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Exam 5: The Foreign Exchange Market

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Question 1

True/False

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

A) True
B) False

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False

Question 2

Multiple Choice

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Most foreign exchange transactions are through the U.S. dollar. If the transaction is expressed as the foreign currency per dollar this known as ________ whereas ________ are expressed as dollars per foreign unit.

A) European terms; indirect
B) American terms; direct
C) American terms; European terms
D) European terms; American terms

E) A) and C)
F) B) and C)

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Question 3

Multiple Choice

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

Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.

It is characteristic of foreign exchange dealers to:

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

Most transactions in the interbank foreign exchange trading are primarily conducted via telecommunication techniques and little is conducted face-to-face.

Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

Since in the U.S. the home currency is the dollar and the foreign currency is the euro, in New York USD 1.2174 = EUR 1.00 would be a direct quote on the euro and an indirect quote on the dollar.

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

The most commonly quoted currency exchange is that between the U.S. dollar and the European euro. For example, a quotation of EUR/USD 1.2174. The euro is the base currency and the dollar the price currency.

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 ________.

________ 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.

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

As you might expect, the foreign exchange daily trading volume in in New York City is roughly twice as large as the daily trading volume in London.

Which of the following may be participants in the 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.

Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.

A contract to deliver dollars for euros in six months is both "buying euros forward for dollars" and "selling dollars forward for euros."

The low level of interest rates around the globe in recent years, combined with slowing economic growth and new debt issuances, has had a dampening impact on the swap market.