Exchange Rate Quotation Quiz
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Exchange Rate Quotation Quiz

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Questions and Answers

What does the term 'Foreign Exchange' refer to?

  • The money of a foreign country. (correct)
  • The currency used for international trade only.
  • The exchange rate between two local currencies.
  • The savings accounts in foreign banks.

    • Which of the following is a characteristic of the Foreign Exchange Market?

  • It operates only during business hours.
  • It is an over-the-counter market. (correct)
  • It is a centralized marketplace.
  • It involves only government transactions.

    • What is implied by the term 'high liquidity' in the context of the Foreign Exchange Market?

  • Only major currencies can be traded.
  • It is only open for limited hours.
  • Currency is easily exchanged without significant price changes. (correct)
  • There are many regulations controlling trades.

    • How often can trades occur in the Foreign Exchange Market?

    <p>24/7 across different time zones.</p> Signup and view all the answers

    Which of the following participants is NOT typically involved in the Foreign Exchange Market?

    <p>National Governments</p> Signup and view all the answers

    What is the main function of an exchange rate?

    <p>To establish the price of one currency in terms of another.</p> Signup and view all the answers

    Which of the following is NOT a common currency code?

    <p>ABC</p> Signup and view all the answers

    What does 'Bid-Ask Spread' refer to in the Foreign Exchange Market?

    <p>The difference between buying and selling prices.</p> Signup and view all the answers

    What is the cost in US dollars of a souvenir that costs 2000 Indian Rupees given the exchange rate of INR 45 per USD?

    <p>USD 44.44</p> Signup and view all the answers

    How much will a Japanese importer pay in yen for $1,000 worth of oranges if the exchange rate is ¥107.52 per USD?

    <p>¥107,520</p> Signup and view all the answers

    If a Japanese machine costs 30,000 yen, how many US dollars would an American importer need at an exchange rate of ¥107.52 per USD?

    <p>$279</p> Signup and view all the answers

    What does currency appreciation mean?

    <p>The currency's value has increased relative to another currency.</p> Signup and view all the answers

    In the context of bid-ask spreads, what is the bid price?

    <p>The price a dealer will pay for a currency.</p> Signup and view all the answers

    If the exchange rate changes from $1.06/€ to $1.28/€, what can be inferred about the currencies?

    <p>The US dollar has depreciated against the euro.</p> Signup and view all the answers

    If the USD/GBP exchange rate is quoted as 2.0816 – 2.0820, what is the ask price?

    <p>2.0820 USD</p> Signup and view all the answers

    How do you convert currencies when the currencies are the same?

    <p>Divide the larger amount by the smaller amount.</p> Signup and view all the answers

    How many Egyptian pounds will a client receive for selling 150,000 Euros at the Ask price?

    <p>8,099,352 EGP</p> Signup and view all the answers

    What is the reciprocal of the old Bid price for EUR/EGP if the old Bid price is 0.01850?

    <p>54.0540 EGP</p> Signup and view all the answers

    What amount of USD would an American traveler need to pay to buy 50,000 JPY at the Bid price of USD?

    <p>$335.57</p> Signup and view all the answers

    At what rate does the bank buy the Euro when a client sells it, given the indirect quote of EUR/EGP?

    <p>53.9956 EGP</p> Signup and view all the answers

    What is the difference between the new Ask and Bid price of EUR/EGP after obtaining the reciprocal?

    <p>0.0582 EGP</p> Signup and view all the answers

    What does a direct quotation express in terms of currency exchange?

    <p>The price of one unit of foreign currency in terms of home currency</p> Signup and view all the answers

    If the exchange rate is 1 USD = EGP 48, what is the indirect quotation?

    <p>EGP 1 = USD 0.021</p> Signup and view all the answers

    If you have EGP 52 and want to buy euros at the exchange rate of 1.00 EUR = EGP 52, how much EUR can you buy?

    <p>1.00 EUR</p> Signup and view all the answers

    In which situation is JPY 114.75/$ considered a direct quote?

    <p>In Japan for Japanese citizens</p> Signup and view all the answers

    Using cross multiplication, how would you calculate the value of currency from $1 = C$ 1.5 to $10,000?

    <p>C$ = 1.5 * $10,000</p> Signup and view all the answers

    What is the reciprocal of an exchange rate quoted as 1 USD = EGP 47.5?

    <p>EGP 1 = USD 0.021</p> Signup and view all the answers

    Which of the following statements best describes the nature of exchange rates?

    <p>Every exchange rate can be considered both direct and indirect based on nationality.</p> Signup and view all the answers

    When quoting an exchange rate as $0.008715/JPY, which type of quotation is this in the US?

    <p>Direct quotation</p> Signup and view all the answers

    What does the bid-ask spread measure?

    <p>The percentage difference between the bid and ask rates.</p> Signup and view all the answers

    In the exchange rate GBP/USD 0.4803 – 0.4804, which quote represents the bank’s selling price?

    <p>0.4804 GBP</p> Signup and view all the answers

    When converting direct quotations to indirect quotations, what happens to the bid and ask prices?

    <p>They are reversed.</p> Signup and view all the answers

    If USD/GBP is 2.0816 – 2.0820, what is the bid-ask spread in percentage?

    <p>0.019%</p> Signup and view all the answers

    If an Egyptian client wants to exchange 10,000 USD at the rate of EGP/USD 47 - 48, how much will they receive?

    <p>470,000 EGP</p> Signup and view all the answers

    Ellen wants to buy EUR 5,000 and the rate is EUR 1 = 1.30 - 1.40 USD. How much will she pay?

    <p>7,000 USD</p> Signup and view all the answers

    What is the correct formula to calculate the bid-ask spread percentage?

    <p>(ask rate - bid rate) / ask rate</p> Signup and view all the answers

    When buying a currency, which price should be used from the bank’s quotes?

    <p>The ask price</p> Signup and view all the answers

    Study Notes

    Exchange Rate Quotation

    • Direct Quote (American way): The price of 1 unit of foreign currency expressed in home currency. This is essentially the domestic price of the foreign currency - how many home currency units are needed to buy one unit of foreign currency.
      • Example: USD 1.00 = EGP 48, meaning it would take EGP 48 to buy $1.
    • Indirect Quote (European way): The price of 1 unit of home currency expressed in foreign currency. This is the foreign price of the domestic currency - how many foreign currency units are needed to purchase one unit of home currency.
      • Example: EGP 1.00 = USD 0.02, meaning it would take $0.02 to buy 1 EGP.

    Key Points on Quotes

    • Reciprocals: A direct quote and an indirect quote are reciprocals of each other. The direct quote is the inverse of the indirect quote.
    • Cross Multiplication can be used to find the equivalent amount of one currency based on a given exchange rate.

    Examples

    • If USD/GBP is 2.0816 – 2.0820, this is a direct quote in the US and an indirect quote in the UK.
    • Bid Price is the price a dealer (bank) is ready to buy a currency at.
    • Ask Price is the price a dealer (bank) is ready to sell a currency at.
    • Bid-Ask Spread is the difference between the ask and bid prices. It's a profit margin for dealers.
    • Percentage Spread: (ask rate - bid rate) / ask rate.

    Key Participants in Foreign Exchange Markets

    • Central Banks
    • Commercial Banks
    • Firms (Importers and Exporters)
    • Individuals
    • Portfolio Managers
    • FOREX Brokers
    • **Speculators **
    • Investors (Traders)

    Forex Market Characteristics

    • Over-the-Counter (OTC) Market: Transactions happen electronically, not in a physical location.
    • 24/7 Operation: Trading occurs across different time zones, making it a continuous market.
    • High Liquidity: Due to high trading volume, currencies are easily bought and sold.
    • Largest Financial Market in the World: Forex is the largest and most active financial market, with substantial trading volume.

    Currency Appreciation and Depreciation

    • Currency Appreciation (Strengthening): When a currency's value increases relative to another currency.
    • Currency Depreciation (Weakening): When a currency’s value decreases relative to another currency.

    Example:

    • A traveler wants to buy 50,000 JPY. The bank quotes USD 1= 149 JPY – 150 JPY.
    • The traveler buys JPY (selling USD), so the bank will purchase USD at the bid price of USD 1 = 149 JPY.
    • The traveler would pay USD 335.57 (50,000 JPY / 149 JPY per USD)

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    Related Documents

    Lecture 1 FOREX – Part 1 PDF

    Description

    Test your understanding of exchange rate quotations with this quiz. Learn about direct and indirect quotes, how they relate, and practice with examples. See if you can determine the reciprocal relationships between different currencies!

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