UNIT 5: Foreign exchange market

The market in which currencies are bought and sold and in which currency prices are determined is called the __________.

Foreign exchange market

The practice of insuring against potential losses that result from adverse changes in exchange rates is called __________.

Currency hedging

__________ is the instantaneous purchase and sale of a currency in different markets for profit.

Currency arbitrage

_________ is the purchase or sale of a currency with the expectation that its value will change and generate a profit.

Currency speculation

In a quoted exchange rate, the currency with which another currency is to be purchased is called the __________.

Quoted currency

In a quoted exchange rate, the currency that is to be purchased with another currency is called the __________.

Base currency

The exchange rate requiring delivery of the traded currency within two business days is called the __________.

Spot rate

The exchange rate at which two parties agree to exchange currencies on a specified future date is called the __________.

Forward rate

__________ is a contract requiring the exchange of an agreed-upon amount of a currency on an agreed-upon date at a specific exchange rate.

Forward contract

A ________ is the simultaneous purchase and sale of foreign exchange for two different dates.

Currency swap

Currency that trades freely in the foreign exchange market, with its price determined by the forces of supply and demand is called a __________.

Convertible currency/ Hard currency

An international monetary system in which nations linked the value of their paper currencies to specific values of gold was called the __________.

Gold standard

A system in which the exchange rate for converting one currency into another is fixed by international agreement is called a __________.

Fixed exchange rate system

The ________ was an accord among nations to create a new international monetary system based on the value of the U.S. dollar.

Bretton Woods Agreement

The agency created by the Bretton Woods Agreement to provide funding for national economic development efforts is called the __________.

World Bank

__________ was the agency created by the Bretton Woods Agreement to regulate fixed exchange rates and enforce the rules of the international monetary system.

The IMF

An exchange-rate system in which currencies float against one another with governments intervening to stabilize currencies at a particular target exchange rate is known as a __________.

Managed float system

__________ is an exchange-rate system in which currencies float freely against one another, without governments intervening in currency markets.

Free float system

The exchange rate at which the bank will buy a currency is called a __________.

Buy rate

A _________ is called the exchange rate at which the bank will sell a currency.

Ask rate

A ________ is a right, or option, to exchange a specific amount of a currency on a specific date at a specific rate.

Currency option

A ________ is a contract requiring exchange of a specific amount of currency on a specific date at a specific exchange rate with all of these conditions fixed and not adjustable.

Currency Futures contract