What Are the Two Main Functions of the Foreign Exchange

question 5

Multiple Choice

What are the two main functions of the foreign exchange market?

• A) Trading of equities of foreign companies and currency conversion
• B) Reducing currency volatility and setting interest rates
• C) Insuring companies against interest rate risk and enabling imports and exports
• D) Currency conversion and providing some insurance against foreign exchange risk

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Definitions:

Yield Curve

A graph showing the relationship between bond yields and their maturity dates, commonly used to predict economic changes.

Price Volatility

Refers to the degree of variation in the price of a financial instrument over time, indicating the risk or uncertainty of its value change.

Coupon Bond

A debt security that pays interest to the holder on a regular basis until its maturity, when the principal is also repaid.

Maturity

The date when a financial instrument (e.g., bond, loan) reaches its final installment and is to be paid off completely.