Ch 9 - FOREX Market

Question 1

Foreign Exchange Market

Answer 1

Market for converting currencies from one country into another

Question 2

Exchange Rate

Answer 2

Rate of conversion for currencies

Question 3

Foreign Exchange Risk

Answer 3

Adverse consequences of unpredictable changes in exchange rates.

Question 4

Currency speculation

Answer 4

Short-term movement of currency funds aiming for a profit.

Question 5

Spot Exchange Rates

Answer 5

Rate at which a foreign dealer converts one currency into another.

Question 6

Forward Exchange Rates

Answer 6

Exchange rates for future transactions

Question 7

Currency Swap

Answer 7

Simultaneous purchase and sale of foreign exchanges.

Question 8

Most Important trading centres:

Answer 8

• London 37%
• New York 18%
• Tokyo & Singapore

Question 9

The law of one price

Answer 9

In free markets, identical products sold in different countries should cost the same.

Question 10

Purchasing Power Parity

Answer 10

In efficient markets, the price of a basket of goods should be roughly equivalent

Question 11

Fisher effect

Answer 11

nominal interest rate is the sum of the required interest + expected inflation : i=r+I

Question 12

Bandwagon effect

Answer 12

Movement of traders like a herd. Same direction & time, in respond to each others actions.

Question 13

Fundamental Analysis

Answer 13

Uses economic theory to predict exchange rate movements.

Variables:
- money supply growth rates
- inflation rates
- interest rates

Question 14

Technical analysis

Answer 14

Uses price & volume data to determine past trends

Question 15

Free convertible currency

Answer 15

The gov. allows the purchase of a foreign currency with the domestic currency