Unit 5 - TCNH

What is the main function of the foreign exchange market?

• To facilitate the exchange of one currency for another

• To buy and sell stocks and bonds

• To lend and borrow money

• To trade commodities

What is the most widely traded currency in the world?

• US dollar

• Euro

• Japanese yen

• British pound

What is the term used to describe the exchange rate between two currencies?

• Interest rate

• Inflation rate

• Spot rate

• Forward rate

What is the difference between the bid price and the ask price in the foreign exchange market?

• The spread

• The premium

• The discount

• The volatility

What is the main reason why individuals and businesses participate in the foreign exchange market?

• To make a profit

• To diversify their investments

• To hedge against currency risk

• All of the above

What is the primary function of the spot market in the foreign exchange market?

• To facilitate the immediate exchange of currencies

• To allow traders to speculate on future exchange rate movements

• To provide forward contracts for currencies

• To allow central banks to intervene in the market

What is the main difference between the spot market and the forward market in the foreign exchange market?

• The spot market deals with immediate exchange, while the forward market deals with future exchange

• The spot market is more liquid than the forward market

• The spot market is more volatile than the forward market

• The spot market is more regulated than the forward market

What is the primary reason why central banks participate in the foreign exchange market?

• To make a profit

• To stabilize the value of their domestic currency

• To diversify their foreign exchange reserves

• To speculate on currency movements

What is the relationship between interest rates and exchange rates, according to the theory of interest rate parity?

• Higher interest rates lead to a stronger domestic currency

• Higher interest rates lead to a weaker domestic currency

• There is no relationship between interest rates and exchange rates

• The relationship depends on other factors, such as inflation

What is the purpose of a forward contract in the foreign exchange market?

• To buy or sell a currency at a predetermined price and future date

• To hedge against currency risk

• To speculate on future currency movements

• All of the above