FOREIGN EXCHANGE MARKET

What is Foreign Exchange Market?

• a place where corporation and government can raise fund

• a market for converting currency of one country into another country

• trading of instrument by an exchange of securities

Purpose of the Forex market is to encourage international investment and trade.

• TRUE

• FALSE

How can the government of foreign country influence the equilibrium exchange rate?

• impose forex barriers

• Impose foreign trade barriers

• Intervene by buying and selling currency

• All above

How would China react to a depreciation of its own currency (the yuan)?

• It would not react to a change in the value of the currency

• The quantity of yuan supplied would increase

• The quantity of yuan supplied would decrease

Arbitrageurs in foreign exchange markets :

• attempt to make profits by outguessing the market.

• b. make their profits through the spread between bid and offer rates of exchange.

• c. need foreign exchange in order to buy foreign goods.

• d. take advantage of the small inconsistencies that develop between markets.