Foreign Exchange Quiz

Which factor does NOT affect exchange rates?

• Inflation rates

• Political stability

• Weather conditions

• Interest rates

What is one of the functions students should understand about the foreign exchange market?

• How to invest in stocks

• The functions of the foreign exchange market

• The history of currency

• The process of minting coins

How are funds typically transferred in the Foreign Exchange Market?

• Through physical cash exchange

• Through electronic transfer and internet

• Through postal services

• Through barter system

Which method is NOT used for transferring funds in the Foreign Exchange Market?

• Electronic transfer

• Internet

• Physical cash exchange

• Domestic bank instructions

What is the effect of appreciation on a currency?

• Increase in value against foreign currency

• Fall in value against foreign currency

• No change in value

• Decrease in demand for the currency

What is the current method of setting currencies?

• In terms of gold

• In terms of other key currencies

• By international agreement

• Based on historical values

Which of the following is NOT a factor in determining Effective ER?

• Domestic currency

• Trade partners

• Population size

• Relative importance of trade

What concern is associated with changes in the spot rate for hedging?

• Increased profit margins

• Decreased transaction costs

• Increased foreign exchange risk

• Decreased currency volatility

Define currency hedging.

• Protecting against currency fluctuations

• Investing in foreign stocks

• Trading commodities

• Buying real estate

What is currency arbitraging?

• Buying and selling currency to profit from price differences

• Long-term investment in foreign currency

• Hedging against currency risk

• Speculating on future currency movements