32 Questions
Which term refers to the increase in the value of a currency in a fixed exchange rate regime?
Revaluation
What is the main function of the Foreign Exchange Market?
To facilitate international currency trades
What does the demand for foreign exchange depend on?
Interest rates in the domestic country and abroad
Who are the participants in the Foreign Exchange Market?
Hedgers, arbitrageurs, and speculators
What is a freely floating / flexible exchange rate regime?
A regime where the exchange rate is determined purely by market forces
What is the main characteristic of a managed float / hybrid exchange rate regime?
The central bank intervenes to influence the exchange rate
What is the price of one dollar in terms of Ethiopian Birr?
53.80/$
Why do we need to exchange one currency for another?
To equalize the price of goods and services produced in different countries
If a dollar is worth 120 yen, how much does a US car costing $10k convert to in yen?
1.2 mln yen
How is the exchange rate defined in terms of domestic and foreign currency units?
$0.019/1 birr and 53.80/$
Who are the major players in the forex market?
Commercial banks, corporations, and nonbank financial institutions
In international trade, why do exchange rates play a central role?
To facilitate comparison of prices of goods and services from different countries
What is the role of central banks in the forex market?
To intervene in foreign exchange markets and hold forex reserves
How do corporations with operations in several countries use forex?
To make or receive payments in currencies other than that of their headquarters
What is the most common type of foreign exchange transactions?
Exchange of bank deposits denominated in different currencies
What is the significance of expressing exchange rates in different ways?
It helps in understanding the rise/fall of the value of a currency
The foreign exchange market is where international currency trades take place.
True
In international transactions, people need to sell one currency and buy another.
True
The foreign exchange rate is the price of one currency in terms of another currency.
True
A freely floating / flexible exchange rate regime is a system where the exchange rate is allowed to fluctuate according to the foreign exchange market forces.
True
The demand for and the supply of foreign exchange depend on various factors such as interest rates, inflation, and political stability.
True
Arbitrageurs, hedgers, and speculators play a role in the interaction within the foreign exchange market.
True
Exchange rate can be expressed in terms of domestic currency units per unit of foreign currency and foreign currency units per unit of domestic currency.
True
An Ethiopian importer must sell birr and purchase dollars to buy American goods.
True
Exchange rates play a central role in international trade because they allow us to compare the prices of goods and services produced in different countries.
True
If a dollar is worth 120 yen, the US car costing $10k converts to 1.2 mln yen.
True
Central banks sometimes intervene in foreign exchange markets and hold forex reserves that can affect the supply of and demand for currency.
True
Corporations with operations in several countries frequently make or receive payments in currencies other than that of their headquarters.
True
The most common participants in foreign exchange transactions are individual retail investors.
False
When expressing an exchange rate in terms of foreign currency units per unit of domestic currency, the exchange rate is written as $0.019/1 birr.
True
Foreign exchange rates are only important for domestic trade and have no impact on international trade.
False
If a currency's value increases in a fixed exchange rate regime, it is known as devaluation.
False
Test your knowledge on the foreign exchange market with this quiz covering content definition, features, functions, demand and supply, forex regimes, and more. This quiz is based on the main reference 'International Finance' by Pilbeam, K., 2006.
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