Ch. 5

If £1 costs $1.50 and €1.00 costs $1.20, then the €/£ cross-rate is ______.

1.25

A security that trades on a stock exchange and allows small investors to invest in a currency or a portfolios of assets is known by the initials ______.

ETF

Which of the following statements about the foreign exchange market is correct?

It is open somewhere in the world 24 hours a day, 365 days a year. It is the largest and most active financial market in the world.

An emerging market currency that is not freely obtainable may trade in a type of contract that settles in cash and is known as a ___ - ___ - ___ contract.

Non-deliverable forward

Suppose that the interbank bid for a currency is $1.0543 and the ask is $1.0545.

The retail bid could be 1.0542. The big figure for the bid is 1.05.

The currencies that are by convention priced in terms of the U.S. dollar are said to be in ___ terms (a direct quote from the U.S. perspective).

american

A zero-risk, zero-investment strategy from which a profit is guaranteed is called ___.

arbitrage

Currency ETFs can be used by investors for optimal portfolio construction since currency is now recognized as a distinct ___ class, like stocks and bonds.

asset

Currency market-makers buy at the ______ price and sell at the ______ ______ price.

bid; higher ask

The structure of the foreign exchange market is an outgrowth of one of the primary functions of a(n) ______ banker: to assist clients in the conduct of international commerce.

commercial

A ___ -exchange rate is an exchange rate between a currency pair where neither currency is the U.S. dollar.

cross

The currency of Jordan is the ______, Kuwait's is the ______, and UAE's is the ______.

dinar; dinar; dirham

The formula for calculating the annualized forward premium or discount for currency j in American terms is ______.

fN,j = FN($/j)−S($/j)S($/j)FN($/�)−�($/�)�($/�) × 360/days

Broadly defined, the ______ market includes the conversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in a foreign currency, foreign trade financing, trading in foreign currency options and futures contracts, and currency swaps.

foreign exchange

Contracting today for the future purchase or sale of foreign exchange occurs in the ___ market.

forward

The currency of Switzerland is the Swiss ___

franc

In the formula fN,j = FN(i/j)−S(i/j)S(i/j)FN(�/�)−�(�/�)�(�/�) × 360/days, which of the variables represents dollars, in American terms?

i

From the U.S. perspective, a(n) ___ quotation is the price of one U.S. dollar in the foreign currency.

indirect

From the U.S. perspective, a(n) ______ forward quote is in ______ terms.

indirect; European direct, American

The process of using foreign currency reserves to buy one's own currency in order to decrease its supply and thus increase its value in the foreign exchange market, or alternatively, selling one's own currency for foreign currency in order to increase its supply and lower its price is referred to as ______.

intervention

When the forward price is Blank______ than the spot price, it is said to be at a Blank______.

lower; discount higher; premium

A bank's uncovered speculative position in a currency is referred to as a(n) ___ forward transaction.

outright

Foreign exchange is traded in a(n) ______ market, not in a central marketplace where buyers and sellers congregate.

over-the-counter

A shorthand method for expressing forward quotes from spot rate quotations is the use of forward ___.

points

The cash settlement of non-deliverable forward contracts is based on the difference between the NDF rate and the ___ ___ rate times the notional amount of contract.

spot exchange

The simultaneous sale of spot foreign exchange against a forward purchase of approximately an equal amount of the foreign currency is a forward ___ transaction.

swap

The process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars to make a profit is referred to as ___ arbitrage.

triangular

International commercial banks communicate instructions through the private, nonprofit message transfer system headquartered in Brussels known by its acronym ______.

SWIFT