I need a short answer for each subquestion. Short answer will be fine. 1 Foreign Exchange Market:...

I need a short answer for each subquestion. Short answer will be fine.

1 Foreign Exchange Market:

A. How is the Foreign Exchange Rate for a country Determined?

B. Is the Foreign Exchange Market Efficient? What are its implications for Finance manager?

C. What are Crypto-Currencies and what role do you think they will play in future? How will this impact the FX market and Gold market?

Expert Solution

The exchange rate is determined by forces of supply and demand for foriegn exchange. Demand arises due to demand for imports of goods and services, speculation etc. Supply arises due to exports of goods and services, speculation etc. Some countries also fix exchange rate artificially

B yes it is efficient. Even small variations are noted by traders and they soon engage in speculation with the result exchange rate is corrected. Implications for finance manager is to keep watch and invest whenever profitable opportunities exist in overseas or exchange market. He has also to save his investment from variations in exchange rate.

C crypto currency is digital means of exchange. It uses cryptography to secure transactions, control creation of digital currency and transfer of assets. From what is happening today it can be concluded that it will become mainly as store of value and as investment destination. It will not act too much as medium of exchange since many countries like South Korea, India are against its use. It will reduce demand for gold and FX as Investors are utilising it for speculation instead of FX and gold. However all will depend on how national govts regulate it

Rahul Sunny answered 1 year ago

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