The Foreign Exchange Market

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Question 1
Free
Multiple Choice

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

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A

The market provides the physical and institutional structure through which the money of one country is exchanged for another.

B

The rate of exchange is determined in the market.

C

Foreign exchange transactions are physically completed in the foreign exchange market.

D

All of the above are true.

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Question 2
Free
Multiple Choice

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.

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A

Eurodollar transaction

B

import/export exchange

C

foreign exchange transaction

D

interbank market transaction

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Question 3
Free
Multiple Choice

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.

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A

futures market

B

federal open market

C

foreign exchange market

D

LIBOR

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Question 4
Free
Multiple Choice

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

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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 5
Free
Essay

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.

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Question 6
Multiple Choice

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

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A
London, New York, and Tokyo.
B
New York, Zurich, and Bahrain.
C
Paris, Frankfurt, and London.
D
Los Angeles, New York, and London.
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Question 7
Multiple Choice

The authors identify two tiers of foreign exchange markets:

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A
bank and nonbank foreign exchange.
B
commercial and investment transactions.
C
interbank and client markets.
D
client and retail market.
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Question 8
Multiple Choice

It is characteristic of foreign exchange dealers to:

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A
bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale.
B
act as market makers, willing to buy and sell the currencies in which they specialize.
C
trade only with clients in the retail market and never operate in the wholesale market for foreign exchange.
D
All of the above are characteristics of foreign exchange dealers.
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Question 9
Multiple Choice

Which of the following may be participants in the foreign exchange markets?

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A
bank and nonbank foreign exchange dealers
B
central banks and treasuries
C
speculators and arbitrageurs
D
all of the above
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Question 10
Multiple Choice

________ 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.

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A
Speculators and arbitrageurs
B
Foreign exchange brokers
C
Central banks
D
Treasuries
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Question 11
Multiple Choice

In the foreign exchange market, ________ seek all of their profit from exchange rate changes while ________ seek to profit from simultaneous exchange rate differences in different markets.

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A
wholesalers; retailers
B
central banks; treasuries
C
speculators; arbitrageurs
D
dealers; brokers
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Question 12
Multiple Choice

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.

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A
central banks; treasuries
B
dealers; brokers
C
brokers; dealers
D
speculators; arbitrageurs
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Question 13
Multiple Choice

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

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A
Central banks
B
Foreign exchange brokers
C
Arbitrageurs
D
Foreign exchange dealers
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Question 14
True/False

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

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True
False
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Question 15
True/False

Foreign exchange markets are a relatively recent phenomenon, beginning with the agreement at Bretton Woods.

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True
False
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Question 16
True/False

Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.

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True
False
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Question 17
True/False

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

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True
False
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Question 18
True/False

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

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True
False
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Question 19
True/False

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

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True
False
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Question 20
True/False

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.

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True
False
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