Ch 11 Flashcards
(27 cards)
What is foreign exchange?
The process of converting one currency into another for various purposes, including trade, tourism, and investment.
True or False: The foreign exchange market is the largest financial market in the world.
True
What does ‘FX’ stand for?
Foreign Exchange
Fill in the blank: The foreign exchange market operates _____ hours a day.
24
What is the primary purpose of the foreign exchange market?
To facilitate the exchange of currencies for international trade and investment.
Multiple Choice: Which of the following is NOT a major currency in the foreign exchange market? A) USD B) EUR C) AUD D) ZAR
D) ZAR
What is a currency pair?
A quotation of two different currencies, where one currency is quoted against the other.
True or False: The exchange rate is the price of one currency in terms of another currency.
True
What is a spot exchange rate?
The current exchange rate at which a currency can be exchanged immediately.
Fill in the blank: A _____ is an agreement to exchange currencies at a specified future date at a predetermined rate.
forward contract
What does the term ‘liquidity’ refer to in the context of foreign exchange?
The ease with which a currency can be bought or sold in the market without affecting its exchange rate.
Multiple Choice: Which institution typically participates in the foreign exchange market? A) Central Banks B) Retail Investors C) Corporations D) All of the above
D) All of the above
What is the role of central banks in the foreign exchange market?
To manage their country’s currency, control inflation, and stabilize the economy.
True or False: Currency speculation involves buying and selling currencies to profit from changes in exchange rates.
True
What is a bid-ask spread?
The difference between the price a buyer is willing to pay (bid) and the price a seller is willing to accept (ask) for a currency.
Fill in the blank: A _____ market is characterized by high volatility and significant price movements.
volatile
What is currency risk?
The potential for loss due to fluctuations in exchange rates.
Multiple Choice: Which of the following factors can influence exchange rates? A) Economic indicators B) Political stability C) Interest rates D) All of the above
D) All of the above
What is a currency peg?
A policy in which a country’s currency value is tied or fixed to another major currency.
True or False: Forex trading is only conducted by large financial institutions.
False
What is an exchange rate regime?
The way a country manages its currency in relation to other currencies, including fixed, floating, and pegged systems.
Fill in the blank: A _____ is a market where currencies are traded based on their current value.
spot market
What is the primary risk associated with foreign exchange trading?
Exchange rate risk
Multiple Choice: Which type of analysis focuses on economic indicators to predict currency movements? A) Technical analysis B) Fundamental analysis C) Sentiment analysis D) Quantitative analysis
B) Fundamental analysis
