Forward Contracts and Currency Transactions Quiz

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What is a natural hedge?

A contract that gives its holder the right to buy or sell an asset

A situation where aggregate risk is reduced by derivatives transactions (correct)

A type of derivative transaction involving two counterparties

A method used by MNCs to lock in exchange rates

What distinguishes currency future contracts from forward contracts?

Currency future contracts involve standard contract specifications. (correct)

Currency future contracts involve non-deliverable transactions.

Forward contracts offer greater liquidity.

Forward contracts are based on cross-rates.

Which market is commonly traded on the Chicago Mercantile Exchange (CME)?

Currency Spot Market

Currency Futures Market (correct)

Non-Deliverable Forward Contracts Market

Forward Contracts Market

What is the purpose of forward contracts for MNCs?

To hedge their imports and lock in exchange rates Signup and view all the answers

How is the price of currency futures typically determined?

Through riskless trading Signup and view all the answers

What does the bid/ask spread indicate for less liquid currencies?

Wider spread Signup and view all the answers

Why are currency futures contracts considered similar to forward contracts?

Both have standardized number of units per contract. Signup and view all the answers

What does it mean when the forward rate is at a premium compared to the current spot rate?

The forward contract is more expensive than the spot rate Signup and view all the answers

What is the Strike (Exercise) Price in options trading?

The predetermined price at which an asset can be bought or sold Signup and view all the answers

In currency futures, what does the term 'arbitrage' refer to?

Determining the price through riskless trading Signup and view all the answers

What does a non-deliverable forward contract involve?

Payment to settle differences based on future and spot rates Signup and view all the answers

What does a Call Option allow its holder to do?

Buy a share of stock at a certain price within a specified period Signup and view all the answers

What is the primary function of rural banks?

Grant loans to small farmers for capital or other uses Signup and view all the answers

Which entities are considered foreign participants in the context of the text?

Individuals and organizations from different countries Signup and view all the answers

What distinguishes private development banks from government institutions with similar names?

Government institutions are involved in rural development Signup and view all the answers

Which sector do thrift banks primarily target for providing funds?

Agriculture and industry at reasonable interest rates Signup and view all the answers

What characterizes commercial banking institutions according to the text?

Bulk of resources in the banking industry Signup and view all the answers

What is a significant aspect of central banks' oversight responsibilities?

Overseeing domestic commercial banks Signup and view all the answers

What is the primary role of the BSP in relation to banks?

Clearing disagreements between banks Signup and view all the answers

Why does BSP need to control credit according to the text?

To balance prices of goods and services Signup and view all the answers

Which group is primarily described as receiving income from wages and salaries?

Households Signup and view all the answers

What do financial institutions primarily do according to the text?

Channel funds from borrowers to lenders Signup and view all the answers

Which entity is responsible for managing a state's currency, money supply, and interest rate?

The Central Bank Signup and view all the answers

What is the purpose of non-financial institutions according to the text?

Engaging in trading or manufacturing activities Signup and view all the answers

What is the primary purpose of a trust company?

Administering trusts and holding property for others Signup and view all the answers

Which entity regulates non-stock savings and loans associations?

Social Security System Signup and view all the answers

What distinguishes financing companies from trust companies?

Extending credit facilities to consumers and enterprises Signup and view all the answers

Which of the following is a characteristic of other non-bank financial institutions?

Include fund managers and venture capital corporations Signup and view all the answers

What type of funds does the Government Service Insurance System (GSIS) administer?

General Insurance Fund/Property Insurance Signup and view all the answers

When did the Social Security System (SSS) commence its operations?

September 1, 1957 Signup and view all the answers