Exchange Rates
When an unsettling international event occurs, it can cause traders to feel fearful and buy only currencies that are considered strong and stable. These currencies are often called "safe havens." futures. base currencies. spots.
"safe havens."
Which of the following is a political influence that can affect currency value: Overall attitude toward the market Low levels of inflation Change in executive leadership Tax increases or cuts
Change in executive leadership
Which of the following economic factors strengthens currency value: Increased inflation High government debt High interest rates A trade deficit
High interest rates
Who are the main players on the foreign exchange market?
banks are the biggest trader, Investment funds are the second biggest players
In the exchange-rate quotation USD/EUR = 0.73, USD is the __________ currency. counter pegged base quote
base
Governments participate in the foreign exchange market through their judicial systems. stock markets. central banks. elected representatives.
central banks.
The biggest traders of currency on the foreign exchange market are individuals. businesses and corporations. commercial and investment banks. governments.
commercial and investment banks.
An exchange-rate quotation that uses domestic currency as the base currency is known as a(n) __________ quotation. direct indirect free-floating home
direct
What is the foreign exchange market?
largest financial market in the world
In the exchange-rate quotation GBP/JPY = 171.93, JPY is the __________ currency. free-floating base strong quote
quote
Which of the following is an advantage of strong currency: It boosts consumer confidence. It raises the cost of living. It makes domestic businesses more attractive to foreign investors. It makes exports more expensive for foreign consumers.
It boosts consumer confidence.
Which of the following is an advantage of weak currency: It improves global perception of the domestic economy. It inhibits business expansion into foreign markets. It boosts exports. It makes buying imports cheaper.
It boosts exports.
Which of the following is a reason for pegging currency: To impede trade To weaken another country's currency To stabilize currency To "let the market decide"
To stabilize currency
What is an exchange rate?
a rate at which one currency can be sold for another, or the measure of value in terms of another
An exchange rate indicates one currency's value in relation to the U.S. dollar. another currency. its value from a year ago. an average of all world currencies.
another currency.
Corporations participate in the foreign exchange market so that they can make a profit from currency speculation. complete transactions with foreign businesses smoothly. purchase securities for their clients. achieve economic goals for the nation.
complete transactions with foreign businesses smoothly.
Pegged currency is also known as __________ currency. fixed free-floating weak risky
fixed
Almost every major economy in the world has __________ currency. counter strong pegged free-floating
free-floating
Currency speculation is risky because it can lead to high inflation. predicting currency values is relatively easy. it is a practice very few traders participate in. it can be extremely profitable.
it can lead to high inflation.
Forwards and options are types of trading instruments. interbank markets. counter currencies. exchange-rate quotations.
trading instruments.
Which of the following is a disadvantage of strong currency: It attracts foreign travelers. It makes imports cheaper. It lowers global opinion of the domestic economy. It creates a drop in export sales.
It creates a drop in export sales.
Which of the following is a true statement about the foreign exchange market: It is a decentralized market. It operates only within the United States. It is open three days a week. It is the world's second largest financial market.
It is a decentralized market.
Which of the following is a disadvantage of weak currency: It makes acquiring foreign companies more expensive. It makes buying imports less expensive. It reduces business profits. It negatively affects the balance of trade.
It makes acquiring foreign companies more expensive.
Two types of currency?
Pegged and Free-Floating
