Foreign Exchange Swaps Involve

question 66

Multiple Choice

Foreign exchange swaps involve:

• A) selling one currency on the spot market and at the same time purchasing it forward.
• B) trading goods rather than money to improve efficiency.
• C) delaying payment of a spot contract until the currency is actually delivered.
• D) a promissory note with repayment in 60 days.

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Definitions:

Required Reserve Ratio

The minimum fraction of deposits banks are required by law to keep as reserves, either in their vaults or on deposit at a central bank.

Term Auction Facility

A monetary policy tool used by the Federal Reserve to provide short-term loans to banks, aiming to improve liquidity and stability in financial markets.

Bank Insolvency

A situation where a bank's liabilities exceed its assets, making it unable to meet its obligations and continue its operations.

Excess Reserves

Banks' reserves that exceed the minimum requirement set by a central bank, not lent out and often kept for emergency purposes.