1.What are the three major functions of the foreign exchange market?

2.For each of the foreign exchange market participants identify their motive for buying or selling foreign exchange.

a.Foreign exchange dealers

b.Foreign exchange brokers

c.Individuals and firms

d.Speculators and arbitragers

e.Central banks and Treasuries

3.a) Kiwi Bank's bid price for New Zealand dollars is $0.5354 and its ask price is $0.5678. What is the bid/ask percentage spread of New Zealand dollar?

b) The USD/MYR exchange rate is quotedas0.3030-0.3268. What isthe bid-

offer spread of Ringgit in points and in percentage terms? What is the monetary value of the point in this case?

4.Dealer A quotes 3.6800-3.6833 for the MYR/USD exchange rate to Dealer B. What are the following:

a)The price at which A is willing to buy the US dollar?

b)The price at which A is willing to buy the Malaysia Ringgit?

c)The price at which B can buy the US dollar?

d)The price at which B can buy the Malaysia Ringgit?

e)The price at which A is willing to sell the US dollar?

f)The price at which A is willing to sell the Malaysia Ringgit?

g)The price at which B can sell the US dollar?

h)The price at which B can sell the Malaysia Ringgit?

5. At 9:30a.m., MAD Berhad calls Northernbank and asks for a quote on RM/$ exchange rate. Northernbank responds by quoting 3.6565-3.6580. MAD Berhad decides to buy $3,000,000 at the quoted rate. At 3:30p.m., Northernbank quotes 75-

85. Will MAD Berhad make a profit or loss by selling the dollars at 3:30p.m.? State the profit or loss in RM.

6. The exchange rate between the Australian dollar and the euro, expressed in direct quotation from an Australian perspective, rises from 1.62020 to 1.63888. Calculate: a) The appreciation or depreciation of the euro in points, pips and percentage.

b) The appreciation or depreciation of the Australian dollar in points, pips and percentage.

7. Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes: Swiss franc per US$ = 1.5971/75, Australian dollar/US$ = 1.8215/20, Australian dollar/Swiss franc = 1.1440/44. Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how would he profit if he has $500 000 available for this purpose.