Foreign Exchange Market Exam Questions with Verified Answers

Foreign Exchange Market (FOREX) - ANSWER-A market for converting the currency of one country into that of another country Arbitrage - ANSWER-The process of buying a currency low and selling it high The U.S. Dollar - ANSWER-Which currency is a vehicle currency? The four main uses for FOREX markets - ANSWER--Receipt of payments through exports, investments or licensing -payments for products or services to a foreign country in its currency -for investments when firms have spare cash -currency speculation Currency Speculation - ANSWER-short term movement of funds from one currency to another to profit from shifts in currency exchange Spot Exchange Rate - ANSWER-the rate at which a foreign exchange dealer converts one currency into another currency on a particular day Forward Exchange Rate - ANSWER-A transaction in which two parties agree to exchange currency and execute the deal at some specific date in the future Currency Swap - ANSWER-The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. Carry Date - ANSWER-Borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high Exchange Rate - ANSWER-The rate at which one currency is converted into another Supply and Demand - ANSWER-How are exchange rates converted? A countries price inflation, interest rate, and market psychology - ANSWER-What factors are important to future exchange rates? Inflation - ANSWER-A rise in the general level of prices of goods and services in an economy over a period of time Inflation reflects a reduction in purchasing power per unit of money... - ANSWER-A loss of real value in the medium of exchange and unit of account within the economy