ch07

CHAPTER 7
The Foreign Exchange Market

EASY (definitional)

7.1 Exports of goods and services by the United States by 2008 total more than _________ of gross domestic product.
a) 10%
b) 20%
c) 50%
d) 75%

Ans: a
Section: Introduction
Level: Easy

7.2 Most currency transactions are channeled through the worldwide ________ market which accounts for _______ of foreign exchange transactions.
a) stock, 50%
b) interbank, 50%
c) interbank, 95%
d) internet, 30%

Ans: c
Section: Organization of the foreign exchange market
Level: Easy

7.3 The overwhelming majority of foreign exchange transactions involve
a) multinational corporations buying and selling foreign exchange
b) importers and exporters buying and selling foreign exchange
c) banks buying and selling foreign exchange
d) governments buying and selling foreign exchange

Ans: c
Section: The participants
Level: Easy

7.4 The world 's largest currency trading market is
a) New York
b) Frankfurt
c) Tokyo
d) London

Ans: d
Section: Size
Level: Easy

7.5 American terms refers to the
a) number of U.S. dollars per unit of foreign currency
b) number of foreign‑currency units per U.S. dollar
c) quotation system found in the United States
d) bid‑ask spread on the U.S. dollar

Ans: a
Section: Spot quotations
Level: Easy

7.6 Trading on the foreign exchange market is
a) located in a physical headquarters in London
b) takes place within an organized exchange
c) conducted by licensed brokers from the London stock exchange
d) an electronically linked network of banks, brokers, and dealers

Ans: d
Section: Organization
Level: Easy

7.7 Traders on the foreign exchange market use ___________ to eliminate or cover the risk of loss on export or import orders denominated in foreign currencies.
a) currency options
b) forward contracts
c) money-market hedges
d) currency futures contracts

Ans: b
Section: The participants
Level: Easy

7.8 Hedgers, mostly _____________, engage