26. The foreign exchange market verves two main functions. These are so A) colle

Question

26. The foreign exchange market verves two main functions. These are so A) collect duties on imported products and convert the currency of one counery imto the currency of B) convert the currency of one country into the currency of another and provide some insurance aqainmst foreign exchange risk C) collect duties on inmported products and set interest rates charged to foreign invessors D) insure companies against foreign exchange risk and set interest rates charged to foreign investors 27 According to econonmie theory, a persistent negativ e balance of payments should result in A) a higher value of currency B) a lower value of currency with lower interest rates C) a lower value of currency with higher interest rates D) a higher value of currency with higher interest rates E) a lower value of currency with deflation 28. Central banks may wish to improve the employment picture, and hence GDIP, by but this which in turn could lead to a in the value of their currency may cause A) buying foreign reserves, inflation, rise B) printing money, inflation, fall C) selling gold, inflation, rise D) selling bonds, deflation, fall 29. determinets) whether the rate of growth in a country's money supply is greater than the rate of growth in output A) . The international monetary authority B) Market mechanisms C) The private sector D) Central bank policy 30. drives supply demand interactions of the future value of currencies and is a characteristic of floating exchange rate regimes. A) The availability of gold B) Speculation C) The treasury department of all major countries D) Coordinated global monetary policy 31. Persistent current account deficits can cause as observed through the balance of _in a country and payments effects and the capital account. The net outflows reduce the result in an inward shift of the PPF A) economic deterioration, stock of capital B) deflation, cash hoarding by banks C) inflation, required stimulus D) increased economic activity, burden of debt repayment 32. The law of one price and purchasing power parity are two models that depict A) B) C) D) The most efficient way for central banks to manage currencies the effect of interest rate policy on market psychology the transmission mechanisms through which prices and currencies adjust how the psychology of the market can lead to speculation and capital flight

Explanation / Answer

Answer (First Question):

Foreign Exchange Market serves two main functions they are : ??

To Know the answer for the above question, let us understand what is Foreign Market exchange.

Foreign Exchange Market

Foreign Exchange Market‘s main functions are:

1.Transfer Function: It serves for conversion of one currency to another through its credit instruments.

For Example, If a company from India imports/purchases foods/services from UK company, the payments has to be made in Pounds, So, the conversion of Pound from Rupee will be served by Foreign exchange market.

2.Credit Function: It provides short term credit facilities to importers to facilitate ease of doing business between one country to another country.

For Example, If any company in India imported goods/rendered services from USA, payments can be made through a bill of exchange which is a three months maturity credit facility available in foreign exchange market.

3.Hedging Function: It serves to hedge foreign exchange risks that arises due to chafe in exchange rates.

For Example, Forward contracts, this is three months contract to buy or sell foreign exchange currency for another currency at fixed price in future payments that is agreed on today.

As per above details, we can understand the correct answer among given options is:

Option B: Convert the one country currency into the currency of another country and provide some insurance against foreign exchange risk.

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