Multinational Business Finance – Chapter 5, 2026 – Study
Material and Practice Questions
Functions of the Foreign Exchange Market - ANS✔✔ 1. Transfer purchasing power between
countries
2. Obtain or provide credit for international trade transactions
3. Minimize exposure to the risks of exchange rate changes
The Foreign Exchange Market - ANS✔✔ Liquidity seekers
Profit seekers
Market Participants - ANS✔✔ 1. Bank and nonbank foreign exchange dealers
2. Individuals and firms conducting commercial or investment transactions
3. Speculators and arbitragers
4. Central banks and treasuries
5. Foreign exchange brokers
Bank and nonbank foreign exchange dealers - ANS✔✔ 1. Traders of large international banks
are 'market makers'.
2. Smaller sized banks and other institutions are participants, but not market makers.
Individuals and firms conducting commercial or investment transactions - ANS✔✔ This is the
group of people who need the foreign exchange market because they have some cross border
interest (multinational firms, tourists)
Speculators and Arbitragers - ANS✔✔ 1. Speculation
to profit from exchange rate changes in time (in the same market). Involves taking a risk
Material and Practice Questions
Functions of the Foreign Exchange Market - ANS✔✔ 1. Transfer purchasing power between
countries
2. Obtain or provide credit for international trade transactions
3. Minimize exposure to the risks of exchange rate changes
The Foreign Exchange Market - ANS✔✔ Liquidity seekers
Profit seekers
Market Participants - ANS✔✔ 1. Bank and nonbank foreign exchange dealers
2. Individuals and firms conducting commercial or investment transactions
3. Speculators and arbitragers
4. Central banks and treasuries
5. Foreign exchange brokers
Bank and nonbank foreign exchange dealers - ANS✔✔ 1. Traders of large international banks
are 'market makers'.
2. Smaller sized banks and other institutions are participants, but not market makers.
Individuals and firms conducting commercial or investment transactions - ANS✔✔ This is the
group of people who need the foreign exchange market because they have some cross border
interest (multinational firms, tourists)
Speculators and Arbitragers - ANS✔✔ 1. Speculation
to profit from exchange rate changes in time (in the same market). Involves taking a risk
