FIN 434 EXAM 2 QUESTIONS AND
ANSWERS. VERIFIED 2026.
Broadly defined, the ______ market includes the conversion of purchasing power from one
currency into another, bank deposits of foreign currency, the extension of credit denominated in
a foreign currency, foreign trade financing, trading in foreign currency options and futures
contracts, and currency swaps. - ANS foreign exchange
The structure of the foreign exchange market is an outgrowth of one of the primary functions of
a(n) ______ banker: to assist clients in the conduct of international commerce. -
ANS commercial
The process of using foreign currency reserves to buy one's own currency in order to decrease
its supply and thus increase its value in the foreign exchange market, or alternatively, selling
one's own currency for foreign currency in order to increase its supply and lower its price is
referred to as ______. - ANS intervention
From the U.S. perspective, a(n) ______ quotation is the price of one U.S. dollar in the foreign
currency. - ANS indirect
Saudi Arabia's currency - ANS riyal
South Africa's currency - ANS rand
Thailand's currency - ANS baht
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
1
,Singapore's currency - ANS dollar
South Korea's currency - ANS won
Turkey's currency - ANS lira
UK's currency - ANS pound
Which of the following statements about the foreign exchange market is correct? - ANS -It is
the largest and most active financial market in the world
-It is open somewhere in the world 24 hours a day, 365 days a year
What are ways that cross-exchange rates can be calculated? - ANS -The product of an
American term and a European term exchange rate
-The quotient of two American term exchange rates
Foreign exchange is traded in a(n) ______ market, not in a central marketplace where buyers
and sellers congregate. - ANS over-the-counter
Suppose that the interbank bid for a currency is $1.0543 and the ask is $1.0545. - ANS -The
big figure for the bid is 1.05
-The retail bid could be 1.0542
international banks - ANS Financial institutions that buy or sell foregin currency for their own
account to serve retail clients
bank customers - ANS Multinational corporations, money managers, and private speculators
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
2
,nonbank dealers - ANS Large financial institutions such as investment banks, mutual funds,
pensions, and hedge funds
FX brokers - ANS Match dealer orders to buy and sell currencies for a fee, but do not take a
position themselves
central banks - ANS A national monetary authority
The currencies that are by convention priced in terms of the U.S. dollar are said to be in ______
terms (a direct quote from the U.S. perspective). - ANS american
The currency of Switzerland is the Swiss ______. - ANS franc
A zero-risk, zero-investment strategy from which a profit is guaranteed is called ______. -
ANS arbitrage
A ______-exchange rate is an exchange rate between a currency pair where neither currency is
the U.S. dollar. - ANS cross
Currency market-makers buy at the ______ price and sell at the ______ ______ price. -
ANS bid; higher ask
From the U.S. perspective, a(n) ______ forward quote is in ______ terms. - ANS -Direct,
American
-Indirect; European
Which are the tiers of the foreign exchange market? - ANS -Wholesale or interbank market
-Retail or client market
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
3
, The formula for calculating the annualized forward premium or discount for currency j in
American terms is ______. - ANS =FN($/j)-S($/j)/S($/j)
The cash settlement of non-deliverable forward contracts is based on the difference between
the NDF rate and the ______ ______rate times the notional amount of contract. - ANS spot
exchange
The process of trading out of the U.S. dollar into a second currency, then trading it for a third
currency, which is in turn traded for U.S. dollars to make a profit is referred to as ______
arbitrage. - ANS triangular
A bank's uncovered speculative position in a currency is referred to as a(n) ______ forward
transaction. - ANS outright
If £1 costs $1.50 and €1.00 costs $1.20, then the €/£ cross-rate is ______. - ANS 1.25
A security that trades on a stock exchange and allows small investors to invest in a currency or a
portfolios of assets is known by the initials ______. - ANS EFT
The term FN(j/k) refers to the price of ______. - ANS One more unit of currency k in terms of
currency j for delivery in N months
In the formula fN,j = FN(i/j)−S(i/j)/S(i/j)× 360/days, which of the variables represents dollars, in
American terms? - ANS I
An emerging market currency that is not freely obtainable may trade in a type of contract that
settles in cash and is known as a ______-______-______ contract. - ANS Non-deliverable-
forward
A shorthand method for expressing forward quotes from spot rate quotations is the use of
forward ______. - ANS points
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
4
ANSWERS. VERIFIED 2026.
Broadly defined, the ______ market includes the conversion of purchasing power from one
currency into another, bank deposits of foreign currency, the extension of credit denominated in
a foreign currency, foreign trade financing, trading in foreign currency options and futures
contracts, and currency swaps. - ANS foreign exchange
The structure of the foreign exchange market is an outgrowth of one of the primary functions of
a(n) ______ banker: to assist clients in the conduct of international commerce. -
ANS commercial
The process of using foreign currency reserves to buy one's own currency in order to decrease
its supply and thus increase its value in the foreign exchange market, or alternatively, selling
one's own currency for foreign currency in order to increase its supply and lower its price is
referred to as ______. - ANS intervention
From the U.S. perspective, a(n) ______ quotation is the price of one U.S. dollar in the foreign
currency. - ANS indirect
Saudi Arabia's currency - ANS riyal
South Africa's currency - ANS rand
Thailand's currency - ANS baht
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
1
,Singapore's currency - ANS dollar
South Korea's currency - ANS won
Turkey's currency - ANS lira
UK's currency - ANS pound
Which of the following statements about the foreign exchange market is correct? - ANS -It is
the largest and most active financial market in the world
-It is open somewhere in the world 24 hours a day, 365 days a year
What are ways that cross-exchange rates can be calculated? - ANS -The product of an
American term and a European term exchange rate
-The quotient of two American term exchange rates
Foreign exchange is traded in a(n) ______ market, not in a central marketplace where buyers
and sellers congregate. - ANS over-the-counter
Suppose that the interbank bid for a currency is $1.0543 and the ask is $1.0545. - ANS -The
big figure for the bid is 1.05
-The retail bid could be 1.0542
international banks - ANS Financial institutions that buy or sell foregin currency for their own
account to serve retail clients
bank customers - ANS Multinational corporations, money managers, and private speculators
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
2
,nonbank dealers - ANS Large financial institutions such as investment banks, mutual funds,
pensions, and hedge funds
FX brokers - ANS Match dealer orders to buy and sell currencies for a fee, but do not take a
position themselves
central banks - ANS A national monetary authority
The currencies that are by convention priced in terms of the U.S. dollar are said to be in ______
terms (a direct quote from the U.S. perspective). - ANS american
The currency of Switzerland is the Swiss ______. - ANS franc
A zero-risk, zero-investment strategy from which a profit is guaranteed is called ______. -
ANS arbitrage
A ______-exchange rate is an exchange rate between a currency pair where neither currency is
the U.S. dollar. - ANS cross
Currency market-makers buy at the ______ price and sell at the ______ ______ price. -
ANS bid; higher ask
From the U.S. perspective, a(n) ______ forward quote is in ______ terms. - ANS -Direct,
American
-Indirect; European
Which are the tiers of the foreign exchange market? - ANS -Wholesale or interbank market
-Retail or client market
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
3
, The formula for calculating the annualized forward premium or discount for currency j in
American terms is ______. - ANS =FN($/j)-S($/j)/S($/j)
The cash settlement of non-deliverable forward contracts is based on the difference between
the NDF rate and the ______ ______rate times the notional amount of contract. - ANS spot
exchange
The process of trading out of the U.S. dollar into a second currency, then trading it for a third
currency, which is in turn traded for U.S. dollars to make a profit is referred to as ______
arbitrage. - ANS triangular
A bank's uncovered speculative position in a currency is referred to as a(n) ______ forward
transaction. - ANS outright
If £1 costs $1.50 and €1.00 costs $1.20, then the €/£ cross-rate is ______. - ANS 1.25
A security that trades on a stock exchange and allows small investors to invest in a currency or a
portfolios of assets is known by the initials ______. - ANS EFT
The term FN(j/k) refers to the price of ______. - ANS One more unit of currency k in terms of
currency j for delivery in N months
In the formula fN,j = FN(i/j)−S(i/j)/S(i/j)× 360/days, which of the variables represents dollars, in
American terms? - ANS I
An emerging market currency that is not freely obtainable may trade in a type of contract that
settles in cash and is known as a ______-______-______ contract. - ANS Non-deliverable-
forward
A shorthand method for expressing forward quotes from spot rate quotations is the use of
forward ______. - ANS points
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
4
