Questions and Answers
What is a Spot Currency transaction typically defined by?
Currency swaps allow two foreign parties to exchange currency without any predetermined conditions.
False
What does a derivative instrument's value depend on?
Another financial asset called the underlying asset.
_______ instruments are financial instruments whose value is directly established and perceived by the market.
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Match the following Forex instruments to their descriptions:
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Which of the following is NOT a category of Forex instruments?
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The Securities and Exchange Commission (SEC) regulates the Forex market.
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A ___ is a contract between parties that is an asset for one and a liability for the other.
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Study Notes
Foreign Exchange Instruments
- Known as FX or Forex.
- Involves buying and selling currencies, converting one currency into another.
- The industry is regulated by the Securities and Exchange Commission (SEC).
Categories of Forex Instruments
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Spot Currency
- Involves transactions occurring on "the same day" or within 1-2 business days.
- The value is determined by the current exchange rate.
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Outright Forward
- Commonly referred to as currency forward.
- Allows parties to secure a fixed currency rate for a specified future delivery date.
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Currency Swap
- Engages two foreign parties in exchanging currencies of equal value.
- Includes predetermined currency rates.
Financial Instruments
- Defined as agreements or contracts between parties, constituting assets for one and liabilities for another.
- Serve as capital assets that can be created, liquidated, modified, or traded in market environments.
- Types include cheques, cash, Forex (currency), shares, stocks, futures, options, and bonds.
Types of Financial Instruments
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Cash Instruments
- Their value is established directly by market perception.
- Includes equity securities (stocks) and debt securities (bonds), as well as cash deposits and loans.
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Derivative Instruments
- Derive their monetary value from underlying financial assets, such as bonds, stocks, and currencies.
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Foreign Exchange Instruments
- Also referred to as FX or Forex.
- Represents an over-the-counter (OTC) market where currency buying and selling transactions occur.
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Description
This quiz covers the basics of foreign exchange instruments, including spot currency and outright forwards. Learn how these instruments operate and their valuation based on current exchange rates. Dive into the world of forex trading and regulatory insights.
