Pre Test Quiz - Foreign Exchange Products

1. Which of the following is most actively traded currency?

USD

GBP

EUR

CNY

The USD is the most actively traded currency because it is the global reserve currency and is widely accepted for international transactions. It is used as a benchmark for many commodities and is involved in the majority of foreign exchange transactions. The United States has the largest economy in the world, which also contributes to the high trading volume of the USD.

Explanation

The USD is the most actively traded currency because it is the global reserve currency and is widely accepted for international transactions. It is used as a benchmark for many commodities and is involved in the majority of foreign exchange transactions. The United States has the largest economy in the world, which also contributes to the high trading volume of the USD.

2. Foreign Exchange market is open 24 hours a day on weekdays

True

False

The foreign exchange market is indeed open 24 hours a day on weekdays. This is because the market operates across different time zones, allowing participants from around the world to trade currencies at any time. The market opens in Asia on Sunday evening and closes in North America on Friday evening, providing continuous trading opportunities throughout the week. As a result, traders can take advantage of global economic events and news that can impact currency prices, making it a highly active and liquid market.

Explanation

The foreign exchange market is indeed open 24 hours a day on weekdays. This is because the market operates across different time zones, allowing participants from around the world to trade currencies at any time. The market opens in Asia on Sunday evening and closes in North America on Friday evening, providing continuous trading opportunities throughout the week. As a result, traders can take advantage of global economic events and news that can impact currency prices, making it a highly active and liquid market.

3. If the U.S. dollar depreciates in terms of the Euro

The relative price of U.S. exports would rise.

European goods would be cheaper for Americans

American goods would be cheaper for Europeans

Americans would have to pay fewer dollars for one Euro.

If the U.S. dollar depreciates in terms of the Euro, it means that the value of the U.S. dollar decreases compared to the Euro. As a result, American goods would become cheaper for Europeans. This is because Europeans would need to exchange fewer Euros to obtain the same amount of U.S. dollars, making American goods relatively less expensive for them.

Explanation

If the U.S. dollar depreciates in terms of the Euro, it means that the value of the U.S. dollar decreases compared to the Euro. As a result, American goods would become cheaper for Europeans. This is because Europeans would need to exchange fewer Euros to obtain the same amount of U.S. dollars, making American goods relatively less expensive for them.

4. Which of the following is NOT a major currency trading center?

New York

Tokyo

Frankfurt

Chicago

London

Chicago is not a major currency trading center because it is primarily known for its futures and options trading, particularly in commodities such as agricultural products and energy. While it does have some foreign exchange trading activity, it is not on the same level as the other options listed. New York, Tokyo, Frankfurt, and London are all well-known and significant centers for currency trading, with high volumes of transactions and a wide range of market participants.

Explanation

Chicago is not a major currency trading center because it is primarily known for its futures and options trading, particularly in commodities such as agricultural products and energy. While it does have some foreign exchange trading activity, it is not on the same level as the other options listed. New York, Tokyo, Frankfurt, and London are all well-known and significant centers for currency trading, with high volumes of transactions and a wide range of market participants.

5. What accounts for most of the activity in the foreign exchange market?

Currency trade among central banks

Trading currency between importers and exporters

Interbank trading

Trading by financial institutions

Interbank trading is the correct answer because it refers to the exchange of currencies between banks. This type of trading accounts for the majority of the activity in the foreign exchange market as banks trade currencies to meet the needs of their clients, manage their own positions, and speculate on exchange rate movements. It involves large volumes of transactions and plays a crucial role in determining exchange rates.

Explanation

Interbank trading is the correct answer because it refers to the exchange of currencies between banks. This type of trading accounts for the majority of the activity in the foreign exchange market as banks trade currencies to meet the needs of their clients, manage their own positions, and speculate on exchange rate movements. It involves large volumes of transactions and plays a crucial role in determining exchange rates.