L6

Question 1

FX enables

Answer 1

allows corp, investors and tourists to convert money into another
OTC

Question 2

Most common currency

Answer 2

USD VC- being one side of 88% of all trades

Question 3

FX Participants

Answer 3

Dealers, brokers and others

Question 4

FX dealers

Answer 4

buy at low and sell at high to make a profit
commercial and investment banks and brokage firms
market markers- make it eaiser for buyers and sellers to come together
liquidity
* easy at which one can sell an asset at its fv
* low tc

Question 5

FX brokers

Answer 5

intermediaries- match buyer and sellers for a fee- commission

Question 6

Other participants in fx markets

Answer 6

central banks
multinational corps
smaller banks- representing customers

Question 7

Triangular arbitrage

Answer 7

arbitrage- earn riskless profit by simultaneously buying and selling equivalent assets

keeps cross rates in line with exchange rates quoted

Question 8

Settlement Risk

Answer 8

also know as Herstatt risk- risk that financial institution may not deliver the currency on one side of transaction
addressed by:
*Bank of Settlement (BIS) encouraged the voluntary restiction of transaction amount to limit risk
*netting arrangements

Question 9

Devalue

Answer 9

Currency allowed to fall by government

Question 10

Revalue

Answer 10

Currency allowed to rise by government