ECONOMICS (CBSE/UGC NET)

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ECONOMICS

FOREIGN CURRENCY MARKETS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Characteristics of foreign exchange markets are:i. There must be willing buyer and seller of the currencyii. It deals with financial assets having maturity period up to one year onlyiii. It deals with only those assets which can be converted into cash readily without loss and with minimum transaction cost. iv. Mechanism to effect payment pf large amount of funds locally and globally through an electronic computer network system
A
i and iv
B
iii and iv
C
ii and iii
D
None of the above
Explanation: 

Detailed explanation-1: -The main functions of the market are to (1) facilitate currency conversion, (2) provide instruments to manage foreign exchange risk (such as forward exchange), and (3) allow investors to speculate in the market for profit.

Detailed explanation-2: -Foreign exchange risk refers to the risk that a business’ financial performance or financial position will be affected by changes in the exchange rates between currencies. The three types of foreign exchange risk include transaction risk, economic risk, and translation risk.

Detailed explanation-3: -Functions of Foreign Exchange Market It has 3 main functions: Transfer Function-It transfers purchasing power between the countries involved in the transaction. Credit Function-It provides credit for foreign trade. Bills of Exchange with a maturity period of 3 months are often used in foreign trade.

Detailed explanation-4: -No Physical Existence. The stock markets and bond markets of the world have a physical existence. Largest Market in the World. The Forex market is by far the largest market in the world. 24 by 7 Market. Liquidity. Transparency. Trading Options.

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