5.3 Transactions in the Foreign Exchange Market

_______ are NOT one of the three categories reported for foreign exchange

• Spot transactions
• Swap transactions
• Strip transactions
• Futures transactions

A ________ transaction in the foreign exchange market requires an almost immediate delivery (typically within two days) of foreign exchange

• spot
• forward
• futures
• none of the above

A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.

• spot
• forward
• swap
• currency

A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________.

• buying dollars forward; buying pounds forward
• selling pounds forward; selling dollars forward
• selling pounds forward; buying dollars forward
• selling dollars forward; buying pounds forward

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

• "forward against spot"
• "forspot"
• "repurchase agreement"
• "spot against forward"

The ________ is a derivative forward contract that was created in the 1990s. It has the same characteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S. dollars and the foreign currency involved in the transaction is not delivered.

• nondeliverable forward
• dollar only forward
• virtual forward
• internet forward

Which of the following is NOT true regarding nondeliverable forward (NDF) contracts?

• NDFs are used primarily for emerging market currencies
• Pricing of NDFs reflects basic interest rate differentials plus an additional premium charged for dollar settlement
• NDFs can only be traded by central banks
• All of the above are true

A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

• spot
• forward-forward
• swap
• futures

A spot transaction in the interbank market for foreign exchange would typically involve a two- day delay in the actual delivery of the currencies, while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait.

• True
• False

Nondeliverable Forwards were originally envisioned as a method of currency speculation, but it is now estimated that 70% of NDFs are trading for hedging purposes.

• True
• False