Question

Which of the following is not accurate regarding foreign exchange markets?

Select one:

a. All of the answers are accurate

b. spot foreign exchange transactions involve the immediate exchange of currencies at current exchange rates

c. forward foreign exchange transactions involve the exchange of currencies at a specified exchange rate at a specific date in the future

d. Foreign exchange risk is the risk that cash flows will vary as the actual amount of U.S. dollars received on a foreign investment changes due to a change in foreign exchange rates

e. Currency depreciation occurs when a country’s currency rises in value relative to other currencies

Answer 1

E is the right option as explained below.

a. All of the answers are accurate

False , e is false.

b. spot foreign exchange transactions involve the immediate exchange of currencies at current exchange rates

This is true, since spot exchange is the current exchange rate transaction.

c. forward foreign exchange transactions involve the exchange of currencies at a specified exchange rate at a specific date in the future

True. Forward exchange contract is a pre agreed exchange rate at an agreed future date.

d. Foreign exchange risk is the risk that cash flows will vary as the actual amount of U.S. dollars received on a foreign investment changes due to a change in foreign exchange rates

True, forward exchange risk denotes the risk due to future exchange rate fluctuations.

e. Currency depreciation occurs when a country’s currency rises in value relative to other currencies

False , currency appreciation occurs when a country's currency rises in value relative to other currencies.