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Questions and Answers
What is the primary function of the foreign exchange market?
What is the primary function of the foreign exchange market?
- To facilitate the buying and selling of different countries' currencies (correct)
- To regulate international trade policies
- To provide loans to international businesses
- To determine interest rates for different currencies
What distinguishes the spot market in foreign exchange?
What distinguishes the spot market in foreign exchange?
- It is for foreign investment in bonds and stocks
- Currencies are exchanged for immediate delivery (correct)
- It involves trading of commodities instead of currencies
- Currencies are traded with future delivery dates
In the context of foreign exchange, who typically sells foreign currency?
In the context of foreign exchange, who typically sells foreign currency?
- Exporters (correct)
- Government agencies
- Importers
- Central banks
What is the purpose of the forward market in foreign exchange?
What is the purpose of the forward market in foreign exchange?
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What role do importers play in the foreign exchange market?
What role do importers play in the foreign exchange market?
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Study Notes
Foreign Exchange Market
- The foreign exchange market is a global marketplace where currencies from different countries are bought and sold.
- This market facilitates financial transactions involving different currencies.
- Exporters sell foreign currencies they receive from international sales, while importers purchase foreign currencies to pay for goods and services.
- The foreign exchange market operates through two key mechanisms:
- Spot Market: This segment involves the immediate exchange of currencies, with delivery occurring within two business days.
- Forward Market: In this segment, currencies are traded for future delivery at a pre-determined exchange rate. This allows businesses to manage currency risk and reduce uncertainty.
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