foreign exhange market ch 12

Question 1

main players of foreign exchange market

Answer 1

companies
people
banks
foreign investors
currency speculators
central banks

Question 2

less than 20% of foreign exchange transactions are linked too

Answer 2

needs of importers and exporters

Question 3

over 80% of transactions include

Answer 3

1. speculation
2. investment

Question 4

what does speculation mean

Answer 4

buying currencies they believe will go up in value and selling ones that go down in value

Question 5

why is us dollar the world reserve currency

Answer 5

1. strong and stable economy
2. political stability
3. large number of buyers
4. international currency

Question 6

what is turnover in forex market

Answer 6

total value of all forex transactions that take place at a given period

Question 7

what is the j curve effect

Answer 7

explains when/how a countries currency depreciates and how it affects a country’s trade balance over time

Question 8

what happens in the j curve

Answer 8

1. depreciation occurs
2. initial worsening of trade balance
3. improvement of trade balance over time

Question 9

what happens in initial worsening of trade balance

Answer 9

imports become more expensive because they’re proves in foreign currency. countries pay more for imports and exports stay the same so trade balance worsens

Question 10

what happens in improvement of trade balance over time

Answer 10

eventually exports become cheaper for foreign buyers-> export demand rises. imports fall because of higher prices. trade balance improves