The Effect of Arbitrage Activities in Foreign Exchange Markets Is

question 30

Multiple Choice

The effect of arbitrage activities in foreign exchange markets is to:

• A)create disparity among the rates of various currencies
• B)maximize exchange rate quotation differentials
• C)hinder the otherwise smooth functioning of the exchange markets
• D)create wide swings in quotations from period to period
• E)none of the above

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Definitions:

Intrinsic Value

Intrinsic value refers to the actual value of a company, stock, currency, or product determined through fundamental analysis without reference to its market value.

Vertical Spread

An options trading strategy that involves buying and selling of two options of the same type and expiry date but different strike prices.

Time Spread

A strategy in options trading that involves buying and selling options on the same asset with the same strike price but different expiration dates.

Put

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.