1. What is Foreign Exchange Market? Foreign Exchange Rate?

 Foreign Exchange Market

 Is a market where all currency exchange or where people use one currency to
purchase another currency occurs and is also refer as decentralized and over-
the-counter market.
 It is considered as the world’s largest and most liquid market in terms of trading
volume. Furthermore, it is one of the most accessible financial markets made
available to the public
 Foreign Exchange Rate
 Or (exchange rate, forex rate) are viewed as the value of one country’s currency
when converted into another country’s currency for example when Philippine
Peso is converted into US dollars.

2. Give the importance of Exchange Rate

 It serves as vital link between the domestic and international markets. We can use this
to compare prices of goods, services, and assets quoted in different currencies by using
the exchange rate.
 It affects actual inflation as well as anticipation of future price fluctuations. Changes in
rates have a direct impact on the prices of imported goods and service like from United
States. (Decrease in peso pricing of imported commodities and services are affected by
stronger peso in a country)
 It influenced the cost of servicing the country’s foreign debt. The quantity of peso
needed to buy foreign exchange to pay interest and maturing obligations decreases as
the peso appreciates
 It affects how the Reserve Bank conducts monetary policy.

3. What is the balance of trade?

 Is the difference in value over a period between a country’s imports and exports
of goods and services, it is usually expressed in unit of currency of a particular
country. There are to types of Balance of trade.
 Favorable Balance where a country sells more products that it buys also
called as trade surplus
 Unfavorable Balance happens when there is a trade deficit meaning a
country buys more than it sells
4. What is balance of payment?
 A measure of international trade’s efficacy where in, over a period of time we
get the difference between the total flow of money coming into a country and
the total flow of money going out as a result of import and exports.

5. What are the accounts in the balance of payment? Define each.

 Current Account
 A result of trade balance plus the effects of income and payments.
  We can say that the current account is balance if people/country have sufficient
income or saving for its spending/purchases.

 Capital Account
 Deals with transfer of capital, acquisition, and disposal of non-produced, non-
financial assets
 Capital account’s balance will inform economists whether a country is exporting
of importing capital
 Financial Account
 It tracks record of transfers of financial capital and non-financial capital
 It tracks the increase and decrease of global ownership of assets by people,
government or of businesses.
 Some examples of Financial Accounts are foreign direct investment and foreign
exchange reserves