5.2 Participants in foreign exchange market

The authors identify two tiers of foreign exchange markets:

• bank and nonbank foreign exchange.
• commercial and investment transactions
• interbank and client markets
• client and retail market

It is characteristic of foreign exchange dealers to:

• bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale
• act as market makers, willing to buy and sell the currencies in which they specialize
• trade only with clients in the retail market and never operate in the wholesale market for foreign exchange
• All of the above are characteristics of foreign exchange dealers

Which of the following may be participants in the foreign exchange markets

• bank and nonbank foreign exchange dealers
• central banks and treasuries
• speculators and arbitrageurs
• all of the above

________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.

• Speculators and arbitrageurs
• Foreign exchange brokers
• Central banks
• Treasuries

In the foreign exchange market, ________ seek all of their profit from exchange rate changes while ________ seek to profit from simultaneous exchange rate differences in different markets

• wholesalers; retailers
• central banks; treasuries
• speculators; arbitrageurs
• dealers; brokers

Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase

• central banks; treasuries
• dealers; brokers
• brokers; dealers
• speculators; arbitrageurs

________ are agents who facilitate trading between dealers without themselves becoming principals in the transaction

• Central banks
• Foreign exchange brokers
• Arbitrageurs
• Foreign exchange dealers

Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is level throughout the 24-hour day

• True
• False

Foreign exchange markets are a relatively recent phenomenon, beginning with the agreement at Bretton Woods

• True
• False

Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize

• True
• False