Class 12 Finance Important Chapter 8 Foreign Exchange Market

Class 12 Finance Important Chapter 8 Foreign Exchange Market Solutions English Medium As Per The New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Finance Important Solutions in English and select need one. AHSEC Class 12 Finance Additional Notes Download PDF. HS 2nd Year Banking Additional Solutions.

Class 12 Finance Important Chapter 8 Foreign Exchange Market

Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Banking Additional Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Finance Important Solutions English Medium for All Chapters, You can practice these here.

Foreign Exchange Market

Chapter: 8

IMPORTANT QUESTION AND ANSWER

Short Question and Answer:

1. What is Foreign Exchange?

Ans: Foreign exchange refers to the process of converting one currency into another. It involves the exchange of national currencies in the market, facilitating international trade and investment by ensuring the smooth conversion of currencies across borders.

2. How is the rate of exchange determined?

Ans: The rate of exchange is determined by the forces of demand and supply in the market. Factors such as inflation rates, interest rates, political stability, and market speculation affect the demand and supply of currencies, thus influencing exchange rates.

3. What is the Foreign Exchange Market?

Ans: The Foreign Exchange Market (FOREX) is a global marketplace where currencies are bought and sold. It facilitates the exchange of currencies between buyers and sellers, supporting international trade, investment, and currency conversion.

4. Who are the main participants in the Foreign Exchange Market?

Ans: The main participants in the Foreign Exchange Market include commercial banks, central banks, foreign exchange brokers, non-banking financial institutions, corporations, and individuals, who engage in currency trading and hedging to support international financial activities.

5. What is the role of commercial banks in the FOREX market?

Ans: Commercial banks act as dealers in the Foreign Exchange Market, facilitating currency transactions for businesses, governments, and individuals. They buy and sell currencies, provide services like telegraphic transfers, and manage foreign currency reserves.

6. What is the Over-the-Counter (OTC) Market?

Ans: The Over-the-Counter (OTC) market is a decentralized market where currency transactions are conducted electronically. Unlike traditional stock exchanges, it does not have a physical location, allowing global, continuous currency trading via communication networks.

7. What does liquidity mean in the context of the Foreign Exchange Market?

Ans: Liquidity in the Foreign Exchange Market refers to the ability to quickly buy or sell currencies without causing significant price fluctuations. High liquidity ensures that large transactions can be conducted smoothly at competitive prices.

8. What are the functions of the Foreign Exchange Market?

Ans: The primary functions of the Foreign Exchange Market are facilitating currency conversion, providing short-term credit for international trade, and offering hedging services to protect against currency fluctuations, thus ensuring the stability of global trade.

9. What is the Hedging function in the Foreign Exchange Market?

Ans: Hedging in the Foreign Exchange Market involves using financial instruments like forwards and options to protect against the risks of currency fluctuations. It helps businesses and investors safeguard their profits from unpredictable exchange rate movements.

10. How does the Retail Market differ from the Wholesale Market in FOREX?

Ans: The Retail Market involves smaller transactions between individual customers and banks, while the Wholesale Market deals with large transactions between financial institutions. The Retail Market is more accessible to the general public, whereas the Wholesale Market is used by banks and corporations for bulk currency trading.

Fill in the Blanks:

1. Foreign exchange refers to the process of converting one ________ into another.

Ans: Currency.

2. The ________ market is where foreign exchange transactions take place.

Ans: Foreign Exchange.

3. The rate of exchange is determined by the forces of ________ and ________.

Ans: Demand, supply.

4. The ________ is the central body that regulates the Foreign Exchange Market in India.

Ans: Reserve Bank of India (RBI).

5. The Foreign Exchange Market operates ________ hours a day, except weekends.

Ans: 24.