Question

We very frequently read about the activities of the Foreign Exchange Market in newspapers/magazines. Which of the following is/are the major functions of the same?
A. Transfer of purchasing power from domestic to foreign market
B. Providing credit for financing foreign trade
C. Power to purchase gold from foreign countries, as most of the nations still work on Gold Standards

• A. Only (A)
• B. Only (B)
• C. Only (C)
• D. Both (A) and (B) only

Answer 1

The correct option is D Both (A) and (B) only

Foreign exchange market refers to the market where buying, selling and exchanging of foreign currencies take place. It performs mainly two functions:

a) Transfer function :Transfer of purchasing power from domestic to foreign market

b) Credit function:Providing credit for financing foreign trade.