Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

The answer of Define spot, forward, and swap transactions in...

Question 3

The authors identify two tiers of foreign exchange markets:

Accepted Answer

A) bank and nonbank foreign exchange. 
B) commercial and investment transactions. 
C) interbank and client markets. 
D) client and retail market.

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) New York, London, and Tokyo. 
B) New York, Singapore, and Zurich. 
C) London, Frankfurt, and Paris. 
D) London, Tokyo, and Zurich.

Question 6

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

Accepted Answer

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.

Question 7

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.

Accepted Answer

A) futures market 
B) federal open market 
C) foreign exchange market 
D) LIBOR

Question 8

________ 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.

Accepted Answer

A) Dealers; ask; bid 
B) Dealers; bid; ask 
C) Brokers; ask; bid 
D) Brokers; bid; ask

Question 9

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

Accepted Answer

A) Spot transactions 
B) Swap transactions 
C) Strip transactions 
D) Futures transactions

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

TABLE 6.1
Use the table to answer following question(s). 
-Refer to Table 6.1. The one-month forward bid price for dollars as denominated in Japanese yen is:

Accepted Answer

A) -¥20. 
B) -¥18. 
C) ¥129.74/$. 
D) ¥129.62/$.

Question 12

Daily trading volume in the foreign exchange market was about ________ per ________ in 2010.

Accepted Answer

A) $3,200 billion; month 
B) $1,000 billion; month 
C) $3,200 billion; day 
D) $1,000 billion; day

Question 13

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?

Accepted Answer

The answer of What are some of the reasons central...

Question 14

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.

Accepted Answer

A) central banks; treasuries 
B) dealers; brokers 
C) brokers; dealers 
D) speculators; arbitrageurs

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

Accepted Answer

A) spot 
B) forward-forward 
C) swap 
D) futures

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) ¥115.69/€ 
B) ¥114.96/€ 
C) $0.8908/€ 
D) $0.0077/¥

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 6: The Foreign Exchange Theory and Markets

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

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

The authors identify two tiers of foreign exchange markets:

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.

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

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

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.

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.

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

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

TABLE 6.1 Use the table to answer following question(s) . -Refer to Table 6.1. The one-month forward bid price for dollars as denominated in Japanese yen is:

Daily trading volume in the foreign exchange market was about per in 2010.

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?

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.

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

A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

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

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.

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

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.