Question

2. Please answer with care and attention to all questions. Explain as much as you can to help me understand. Thank you

QUESTION 13

1. The primary participants in foreign exchange markets are

   		individual households
   		small firms
   		large corporations
   		small governments

6.6667 points   

QUESTION 14

1. Floating exchange rate regimes typically have less exchange rate risk than fixed exchange rate regimes.

   True

   False

6.6667 points   

QUESTION 15

1. You observed the following quotes between Canadian dollars (C$), euros (€) and Swiss francs (CHF) on 3/1/XX:

   C$1=€.90, C$.70/CHF

   On 3/2/XX, quotes for each currency were as follows: C$1.15=€1, C$.75/CHF

   You converted 600,000 Swiss francs into euros on 3/1. On 3/2 you converted your euros back to Swiss francs. How many francs would you have on 3/2? Round intermediate steps to four decimals.

   		715,555.56
   		665357.14
   		246,521.74
   		579,587.4

Answer 1

question no 13 answer: The primary participant of foreign markets are

1) Commercial Banks

2) Foreign Exchange Broker

3) Central Banks

4)Multinational Corporations

5)Individuals & Small firms

Individuals & Small firms: These use foreign exchange market to facilitate execution of commercial or investment transactions.The Foreign need of individual & small firms is usually small( for eg while importing they have to pay in foreign currency likewise while exporting they will get foreign currency).These players were very important even thought they had account for only fraction of foreign transactions.Some of these participants use the market for hedging exchange risk.

question 14 answer:

Fixed exchange rate known as pegged exchange rate is a rate regime in which currency value is fixed against either the value of another currency, such as dollors or another measure of value,such as gold

Floating exchange rate is determined by private market through demand and supply.It is aso termed as self correcting as any difference in supply and demand will automatically be corrected in market.If demand of currency is low, its value decrease , thus making imported good more expensive and this will stimulate demand for local goods and services.

Floating rate regimes are have less exchange risk then that of fixed rate regimes. This statement is not true because fixed rate is typically use to stabilize the value of currency by directly fixing its value in a predetermined ratio to a different more stable currency to which value is pegged.

Question 15 Answer:

ON 3/1,WE HAVE

1C$=E.90

1CHF=C$.70(

AND WE HAVE 600000 CHF WHICH MEANS 420000C$(600000*.70) & 378000E(420000*.90)

ON 3/2,WE HAVE

1E=1.15C$

1CHF=C$.75

AND HAVE 378000E WITH US

WE HAVE TO CONVERT THESE 378000E TO CHF @3/2

WHICH MEANS THAT WE HAVE434700C$(378000*1.15) AND 579587.4CHF(434700/.75)