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Exam 5: The Market for Foreign Exchange

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Question 51

Multiple Choice

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The spot market

A) involves the almost-immediate purchase or sale of foreign exchange.
B) involves the sale of futures, forwards, and options on foreign exchange.
C) takes place only on the floor of a physical exchange.
D) all of the above.

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Question 52

Multiple Choice

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Nondollar currency transactions

A) are priced by looking at the price that must exist to eliminate arbitrage.
B) allow for triangular arbitrage opportunities to keep the currency dealers employed.
C) are only for poor people who don't have dollars.
D) none of the above

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Question 53

Multiple Choice

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Indirect exchange rate quotations from the U.S.perspective are

At the wholesale level

Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00.Calculate the euro-pound exchange rate.

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.Consider a currency dealer who makes a market in 5 currencies against the dollar.If he were to supply quotes for each currency in terms of all of the others,how many quotes would he have to provide?

The largest and most active financial market in the world is

Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00.Calculate the euro-pound exchange rate.

The foreign exchange market closes

Which of the following is correct?

What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.In fact,2007 BIS statistics indicate that about _________ of currency trading in the world involves the U.S.dollar on one side of the transaction.

The standard size foreign exchange transactions are for

Using the table above,what is the bid price of pounds in terms of euro?

When a currency trades at a premium in the forward market

Using the table above,what is the ask price of pounds in terms of euro?

You are a U.S.-based treasurer with $1,000,000 to invest.The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.If a bank quotes you a cross rate of £1.00 = €1.20 how much money can an astute trader make?

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00.What is the euro-yen cross rate?

A dealer in British pounds who thinks that the pound is about to appreciate