UNIT 14: THE FOREIGN EXCHANGE MARKET (FOREX)

Why do multinational corporations participate in the foreign exchange (Forex) market?

• 1. To speculate on short-term currency fluctuations for profit

• 1. To fulfill their cross-border trade and investment requirements

• To regulate the foreign exchange market alongside central banks

• To provide liquidity to retail traders

Why is the foreign exchange market considered an over-the-counter (OTC) market?

• Because it operates through a centralized exchange

• Because trading takes place directly between participants without a central exchange

• Because only banks are allowed to trade

• Because transactions are physically settled in an office

Exchange controls used to ……………….. the amount of a country’s money that residents were able to change into foreign currencies

•  protect

• increase

•  limit

• maximize

 The idea of single currency such as Euro in European countries is an example of a bold attempt to ……………..exchange rate fluctuations

• eliminate

• increase

• control

• create

Brokers benefit in participating in the forex from …………………for the services they provide

• 1.  interest

• spread

• commission

• profit

Central   banks   are   market   makers   in   the   forex   by   quoting   ………………. for   national currencies.

• exchange rate

• discount rate

• floating rate

• interest rate

If there is a decrease in exchange rate, …………………

• exports get cheaper

• imports will increase

• a business owner will export more

• imports get cheaper

……………………. buy or sell currencies in order to make a profit by making capital gains or by investing at a higher interest rate.

• dealers

• market makers

• brokers

• customers

If a bank wants to sell a foreign currency, it sells at……………..

•  bid rate

• offer rate

• discount rate

•  interest rate

An increase in the value of a domestic currency will mainly result in …………

• lower imports

• trade surplus

• trade deficit

• increased exports