FINALS: FOREX MARKET

Question 1

is a place where foreign money is brought and money is bought and andsold.It is institutional
arrangement for buying and selling foreign currencies. Export sell the foreign currencies and
importers buy them.

Answer 1

Foreign exchange market

Question 2

Characteristics of FOREX:

Answer 2

1. Electonic market
2. Geographic dispersal
3. Transfer of purchasing power
4. Intermediary
5. Provision of credit through letter of credit
6. Minimization of risk

Question 3

• FOREX operates entirely electronically, with no physical location[1].
  Transactions occur through a network of banks, brokers, and dealers, connected via computer systems[1].
• This electronic nature allows for 24/7 trading, as different financial centers around the world are open at different times[4].

Answer 3

Electronic Market

Question 4

• FOREX is a truly global market, with trading activity occurring in major financial centers worldwide[1].
  Some of the key centers include New York, London, Tokyo, Zurich, and Hong Kong[1].
• This dispersal means that there is always a market open, making it highly accessible for traders[4].

Answer 4

Geographic dispersal

Question 5

• FOREX enables the conversion of one currency into another, effectively transferring purchasing power from one country to another[1].
• This allows businesses to settle international transactions in their preferred currencies, facilitating global trade[1].
• For example, an Indian exporter selling goods to a US company can receive payment in US dollars, which they can then convert to Indian rupees through FOREX[1].

Answer 5

Transfer of Purchasing Power:

Question 6

• FOREX acts as an intermediary between buyers and sellers of currencies[1].
• Banks and brokers facilitate these transactions, matching buyers and sellers to ensure smooth currency conversion[1].
• This intermediary role helps to streamline the process of international payments and settlements[1].

Answer 6

Intermediary:

Question 7

• FOREX acts as an intermediary between buyers and sellers of currencies[1].
• Banks and brokers facilitate these transactions, matching buyers and sellers to ensure smooth currency conversion[1].
• This intermediary role helps to streamline the process of international payments and settlements[1].

Answer 7

Intermediary:

Question 8

• FOREX facilitates international trade by providing credit through instruments like letters of credit[1].
• A letter of credit is a guarantee issued by a bank on behalf of a buyer, promising payment to the seller upon fulfillment of certain conditions[1].
• This credit mechanism reduces risk for both buyers and sellers in international transactions[1].

Answer 8

Provision of Credit through Letters of Credit:

Question 9

• FOREX offers hedging mechanisms to help traders minimize the risk associated with currency fluctuations[1].
• These mechanisms include forward contracts, futures contracts, and options, which allow traders to lock in exchange rates for future transactions[1].
• By hedging, traders can protect themselves from potential losses due to adverse currency movements

Answer 9

Minimization of Risk:

Question 10

Function of foreign exchange

Answer 10

1. Transfer function
2. Credit function
3. Hedging function

Question 11

Structure of forex market consisting g of bankers and money changers( currencies, banknotes, cheque)

Answer 11

Retailment market

Question 12

It is the structure of frex market where we include interbank(bank accounts and deposits) central banks

Answer 12

Wholesale markets

Question 13

Major Participants in forex exchange:

Answer 13

1.RETAILCLIENTS
2.COMMERCIALBANKS
3.FOREIGNEXCHANGEBROKERS 4.CENTRALBANKS

Question 14

IT IS AN AGREEMENT BETWEEN
TWO PARTIES TO EXCHANGE ONE CURRENCY FOR ANOTHER AT AN AGREED EXCHANGE RATE ON AN AGREED DATE.

Answer 14

Foreign exchange transaction

Question 15

Types of forex transactions

Answer 15

1. SPOT TRANSACTION
2. FORWARD TRANSACTION
3. FUTURE TRANSACTION
4. SWAP TRANSACTION
5. OPTI ON TRANSACTION

Question 16

is when the buyer and seller of different currencies settle their paments within the two daysofthedeal.It is the fastest way to exchange the currencies.Here The currencies are exchanged over a
two-day period,which means no contract is signed between the
countries.

Answer 16

SPOT transaction

Question 17

The exchange rate of spot transaction at which the currencies are exchanged is

Answer 17

Spot exchange rate

Question 18

The market in which the spot sale and currencies is facilitated

Answer 18

Spot Market

Question 19

It is a future transaction where the buyer and seller enter into an agreement of sales and an agreement of sale and purchase of currency after 90days days of the deal at a fixed exchange rate on a definite date in the future

Answer 19

Forward transactions

Question 20

Exchange rate in forward transactions is called,

Answer 20

Forward exchange rate

Question 21

This is where forward transaction happen.

Answer 21

Forward market

Question 22

It involves a simultaneous borrowing and lending of two different currencies between two investors.

Answer 22

Swap transactions

Question 23

It gives an investor the right not the
obligation to exchange the currency in one denomination to another at anagreedexchange rate on a predefined date

Answer 23

Option transaction

Question 24

It is the option to buy the currency

Answer 24

Call option

Question 25

The option to sell the currency is called

Answer 25

Put option

Question 26

is a securities industry term describing the date on which a trade(bonds,equities,foreign exchange,commodities,etc.)
settles.

the actual day day on which transfer of cash or asset.

Answer 26

Settlement date