 Essay

1. What is foreign exchange?

 The process converting the currency of one country to that of a second country
2. What is the purpose of the rules on foreign exchange ?
 The purpose of the rules is to stop, on a temporary basis, capital outflows that could
result in immoderate weakening of the crisis when restrictions on foreign exchange
transactions related to commercial activities are lifted.
3. What are rhe functions of foreign exchange ?
 The functions of foreign exchange :
a. International exchange equipment
b. Exchange rate control tool
c. International payment tools
d. Tool to simplify international trade
4. How is the use of foreign exchange in this life ?
 If we make a visit or tourism abroad, we will need money from that country to pay for
all the things we need while there. So we have to to exchange own currency with other
countries currency.
5. What is included in foreign exchange risk ?
 Foreign exchange risk consists of exchange rate risk and country of origin risk
6. What are currencies can be traded in the foreign exchange market ?
 Dollar, Euro, Yen, Pound, etc.
7. What factors determine long run exchange rates ?
 Long-run exchange rates are determined by domestic price level relative to foreign price
level relative to foreign price levels, trade barriers, import and export demand and
productivity.
8. What is related to two-way profits in the foreign exchange market ?
 What is meant by 2 way profits in the money market is that one can get a profit both
when the market rises and the market goes down.

 Multiple Choice
1. The exchange rate is
a) The price of one currency relative to gold.
b) The value of a currency relative to inflation.
c) The price of one currency relative to another.
d) All of the above
9. Exchange rates are determined in
a) The money market.
b) The foreign exchange market.
c) The stock market.
d) Both (b) and (c) of the above.
10. The immediate (two-day) exchange of one currency for another is a
a) Forward transaction.
b) Spot transaction.
c) Money transaction.
d) Exchange transaction.
 e) Daily transaction
11. The currency used to buy imported goods is
a) The currency of third country.
b) Special drawing rights.
c) The buyer’s home currency.
d) The seller’s home currency.
12. ............ is the market in which foreign exchange transaction occur.
a) The Word Bank
b) The United Nations
c) The federal reserve
d) The foreign exchange market
13. Assume you are an American and expect to receive 50 pounds sterling at the and at the end
of 60 days. You can remove the risk of loss due to a devaluation of the pound sterling by:
a) Selling sterling in the forward market for 60-day delivery
b) Buying sterling now and selling it at the end of 60 days
c) Selling the dollar equivalent in the forward market 60-day delivery
d) Keeping the sterling in Britain after it is delivered to you
14. Which of the following tends to cause the U.S. dollar to appriciate in value?
a) An in increase in U.S. prices above foreign prices
b) Rapid economic growth in foreign countries
c) A fall in U.S. interest rates below foreign levels
d) An in increase in the level of U.S. income
15. Concerning the covering of exchange market risks-assuming that a depreciation of the
domestic currency in anticipated, one can say that there is an incentive for.
a) Exporters to rush to cover their future needs
b) Importers to rush to cover their future needs
c) Both exporters and importers to rush to cover their future needs
d) Neither exporters nor importers to rush to cover their future needs
16. When short-term interest rates become lower in Tokyo than in New York, interest arbitrage
operations will most likely result in a (an):
a) Increase in the spot price of the yen
b) Increase in the forward price of the dollar
c) Sale of dollars in the forward market
d) Purchase of yen in the spot market
17. An appreciation in the value of the U.S. dollar against the British pound would tend to:
a) Discourage the British from buying American goods
b) Discourage Americans from buying British goods
c) Increase the number of dollars that could be bought with a pound
d) Discourage U.S. tourists from traveling to Britain

 Fill in The Blank

1. Deciding the rate for the international exchange of money is on of the most complex and, to
many observes, one of the most fascinating aspects of intenational banking.
2. The rate of exchange are determine by market trading based on demand for specific
currencies.
 3. The broker is also useful source picture of the supply and demand fluctations of currencies
during the trading day.
4. Except for the pound starling, all currencies are quotable either in terms of the value of one
unit currency.
5. It reflects the planning time for expotrs, imports and investments.

 Match A column with B column

No A B
1. Foreign exchange Long term borrowing
2. Function foreign exchange Transfer purchasing effort
3. Types of transaction foreign exchange Forward, spot, swap and
transaction
4. Foreign exchange carried out using Money
5. System used in foreign exchange Clearing
6. Performer in the foreight exchange Central bank
7. The delivery of and payment for foreign Settlement
exchange
8. The rate of exchange is determind In the market
9. The treding of foreign exchange for settlement Spot Trading
in two business days, it is also called spot
10. Foreign payment instrument is Foreign exchange