Unit 14: Forex Flashcards
What is a Forex?
Forex is the market in which national currencies are exchanged.
For what purposes do multinational corporations participate in the Forex?
They participate in the Forex because they demand foreign currencies for international investment business and getting of profits.
For what purposes do import - export companies participate in the Forex?
They participate in the Forex because they demand foreign currencies for international trade.
For what purposes do individuals participate in the Forex?
Individuals may demand foreign currencies for their trips abroad, for saving, for dealing to get profits.
What do banks as dealers do in the market?
They act as dealers who buy and sell (trade in) foreign currencies on their own accounts.
How do banks as dealers benefit from the participation in the Forex?
They can earn profits on the difference between buying rates (bid rates) and selling rates (offer rates).
What is an exchange rate?
An exchange rate is the rate in which one currency is exchanged for another.
A bid rate is the exchange rate at which a bank buys one foreign currency with its local currency.
An offer rate is the exchange rate at which a bank sells one foreign currency for its local currency.
What is an OTC market?
Forex is an OTC market because transactions are made throughout the day via telephone and computer link. It has not fixed trading hours and physical trading place.
What are 2 types of transactions?
There are 2 types of transactions in the Forex: spot transaction & forward transaction.
Spot transactions are under taken for an actual exchange of currencies 2 business day later.
Forward transactions involve the delivery date further into the future. It help to protect the value of anticipated flow of foreign currencies from exchange rate volatility.
Why is London the world’s largest foreign exchange center?
Among the most important foreign exchange centers such as NY, London, Tokyo, Paris, Frankfurt, Hong Kong an Zwich, London is the largest one because the largest volume of international financial business generated in London and its geographical location helps London banks to trade with banks all over the world.
How does a Forex operate?
Forex is an OTC market because transactions are made throughout the day via telephone and computer link. It has not fixed trading hours and physical trading place. It has 2 types of transactions such as spot transactions and forward transactions
Who are market makers? What do they do and what is their role in the market?
The central banks are market makers. They astablish the markets and at any time quote exchange rates based on international demand and supply of currencies to supervise the market’s operations in order to ensure the market’s stability.
Who are dealers? What do they do? For what purposes do they participate in the Forex?
Banks act as dealers who buy and sell (trade in) foreign currencies on their own accounts. They participate in the Forex for earn profits on the difference between buying rates (bid rates) and selling rates (offer rates).
Who are customers of the Forex? For what purposes do they participate in the Forex?
Customers in the Forex can be multinational corporations, import-export companies or individual, etc.
- Multinational corporations participate in the Forex because they demand foreign currencies for international investment business and getting of profits.
- Import-export companies participate in the Forex because they demand foreign currencies for international trade.
- Individuals may demand foreign currencies for their trips abroad, for saving, for dealing to get profits.
Who are brokers? What do they do? For what purposes do they participate in the Forex?
Brokers are specialist companies who provide consultancy. Brokers contact banks throughout the world, so that at any time they could know the best exchange rates to provide consultancy to their customers. They don’t deal on their own account, but they charge commissions for their services.
