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Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.

1. When do countries use foreign exchange market?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. not that many staffing 2. months away form being implemented 3. esfs new power to restructured banks goes against EU treaties that guarantee all banking authority to the member state level
1. pay a foreign co for its products or services in a countries currency 2. spare cash for short term money market investments 3. involved in currency speculation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

2. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Establish central control and attempts to forecast future exchange rates
Group of investors movement in the same direction and same time or government intervention
Delay collection of foreign currency receivables if currency is exception to appreciate

3. What is the nominal exchange rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
A common reference
Currency of one country can be exchanged for the currency of another country
Control the amount of money in circulation - enforced by government policies - focus on growth rate

4. What are the characteristics of economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates - forward rates - and swaps

5. What are the two ways to reduce economic exposure?
up to date
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. distribute productive assets 2. ensure assets are not concentrated in countries
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

6. What is the first characteristic of lead strategy?
London - New York - Tokyo - and Singapore
An attempt to collect currency receivables early as result of expected depreciation
Lending of funds in foreign currencies
Group of investors movement in the same direction and same time or government intervention

7. What is arbitrage?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Interest rates and money supply
Impact of currency exchange rate changes on reported financial statements

8. What is free convertible currency?
domino effect
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Spot rates - forward rates - and swaps

9. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Productivity and balance payments
Measurement of past events
Interest rates and money supply

10. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Increase their exposure to banking -'s banking center

11. What is externally convertible currency
Forward exchange or spot exchange
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
True

12. What is the real exchange rate?
Obligations for the purchase or sale of goods and services at previously agreed prices
Interest rates and money supply
Goods and services of one country can be exchanged for the goods and services of another country
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

13. What is the third role of the U.S. dollar outside the U.S.?
High-speed computer linkages between trading centers around the globe - have created 1 market - resulted in no significant difference between exchange rate quotes - different exchange quoted result in arbitrage opportunities
Increase their exposure to banking -'s banking center
Reserve currency
A common reference

14. What is the third thing that determines the forex rates?
State driven recapitalization are now needed
In competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price is expressed in terms of the same currency
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments

15. No single theory can explain explain the causes the value of currencies to change. True or False?
True
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Transaction - translation and economic exposure
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

16. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Delay collection of foreign currency receivables if currency is exception to appreciate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Group of investors movement in the same direction and same time or government intervention
State driven recapitalization are now needed

17. What are two methods of reducing translation and transaction exposure?
Establish central control and attempts to forecast future exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lead and lag strategies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

18. What are some factors that influence exchange rates?
Group of investors movement in the same direction and same time or government intervention
High-speed computer linkages between trading centers around the globe - have created 1 market - resulted in no significant difference between exchange rate quotes - different exchange quoted result in arbitrage opportunities
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

19. What is the second characteristic of transaction exposure?
Establish central control and attempts to forecast future exchange rates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Obligations for the purchase or sale of goods and services at previously agreed prices
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

20. When do countries use the foreign exchange market?
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True
Vehicle currency(transaction between 2 less commonly used currencies)

21. What are the purposes of fiscal policies?
Delay collection of foreign currency receivables if currency is exception to appreciate
Obligations for the purchase or sale of goods and services at previously agreed prices
There is absence of trade barriers - each country price in commodity basket are at an equal ration - not accurate in predicting exchange rates in the short run
Collecting & spending of money by the government

22. What is economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
In competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price is expressed in terms of the same currency
Relative price differences and ppp
Firms future international earning power

23. According to economic theories of exchage rate determination?
Lending of funds in foreign currencies
Investor psychology
Exchange rates are determined by the demand and supply for different currencies
London - New York - Tokyo - and Singapore

24. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase their exposure to banking -'s banking center
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency

25. What is the purpose of not concentrating assets in countries?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Increase currency values and protect against increases in foreign prices of goods and services
1. not that many staffing 2. months away form being implemented 3. esfs new power to restructured banks goes against EU treaties that guarantee all banking authority to the member state level
Delay collection of foreign currency receivables if currency is exception to appreciate

26. Bailout Fund of EFSF - What is this shiz nitz?
24/7
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

27. The euro faces risks fo recapitalization?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. pay a foreign co for its products or services in a countries currency 2. spare cash for short term money market investments 3. involved in currency speculation
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

28. What is the first characteristic of transaction exposure ?
London - New York - Tokyo - and Singapore
Affected by fluctuation in foreign exchange values
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad

29. What is the first issue with EFSF?
Investor psychology
1. no process 2. no agreement as to who should hold the process 3. Germans want eco reforms following bailout 4. remediation and supervisory structures must be built
Issue mo good loans so that profits from new business can eat away the losses form the bad
Affected by fluctuation in foreign exchange values

30. What are some strategies for managing forex risk?
Exchange rate policies
Affected by fluctuation in foreign exchange values
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Establish central control and attempts to forecast future exchange rates

31. What implications does understanding foreign exchange rates have on managers?
Monetary and fiscal policies
Interest rates and money supply
In competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price is expressed in terms of the same currency
It helps them understand the influence of exchange rates on profitability of trade investment deals

32. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Currency of one country can be exchanged for the currency of another country
Firms future international earning power
domino effect

33. What is the fifth thing that determines the forex rates?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
1. not that many staffing 2. months away form being implemented 3. esfs new power to restructured banks goes against EU treaties that guarantee all banking authority to the member state level
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology

34. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Affected by fluctuation in foreign exchange values
u.s. dollar
Forward exchange or spot exchange

35. What is the bandwagon effect when looking at form investor psychology ?
domino effect
True
Group of investors movement in the same direction and same time or government intervention
1. not that many staffing 2. months away form being implemented 3. esfs new power to restructured banks goes against EU treaties that guarantee all banking authority to the member state level

36. What is the first roels of the U.S. dollar outside the U.S.?
Investor psychology
An attempt to collect currency receivables early as result of expected depreciation
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
A common reference

37. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
The income form individual transacations
up to date
Banks stability was measure at a 5% capital adequacy ratio

38. How and What is the purpose of distributing assets?
u.s. dollar
Increase currency values and protect against increases in foreign prices of goods and services
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

39. What is the characteristic of translation expose?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
High-speed computer linkages between trading centers around the globe - have created 1 market - resulted in no significant difference between exchange rate quotes - different exchange quoted result in arbitrage opportunities
Measurement of past events
Productivity and balance payments

40. How do you insure or hedge against a Forex risk?
Issue mo good loans so that profits from new business can eat away the losses form the bad
A common reference
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Forward exchange or spot exchange

41. What are the types of Exchange Rate Fluctuations?
Obligations for the purchase or sale of goods and services at previously agreed prices
Monetary and fiscal policies
Spot rates and forward rates
An attempt to collect currency receivables early as result of expected depreciation

42. What is a currency swamp?
agreed upon austerity
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Transaction - translation and economic exposure
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

43. Marekts are open...
24/7
u.s. dollar
London - New York - Tokyo - and Singapore
Impact of currency exchange rate changes on reported financial statements

44. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Interest rates and money supply
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Lead and lag strategies
Issue mo good loans so that profits from new business can eat away the losses form the bad

45. What is capital fight when looking at it form investor psychology?
In competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price is expressed in terms of the same currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Spot rates and forward rates

46. Because of the recessionary environment euro banks have failed to do what?

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47. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
State driven recapitalization are now needed
London - New York - Tokyo - and Singapore
Impact of currency exchange rate changes on reported financial statements

48. What is the law of one price?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Intervention currency (peg country currency)
In competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price is expressed in terms of the same currency
1. no process 2. no agreement as to who should hold the process 3. Germans want eco reforms following bailout 4. remediation and supervisory structures must be built

49. What is the fourth roles of the U.S. dollar outside the U.S.?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Vehicle currency(transaction between 2 less commonly used currencies)
In competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price is expressed in terms of the same currency
Issue mo good loans so that profits from new business can eat away the losses form the bad

50. What is the fourth thing that determines the forex rates?
High-speed computer linkages between trading centers around the globe - have created 1 market - resulted in no significant difference between exchange rate quotes - different exchange quoted result in arbitrage opportunities
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Firms future international earning power
Exchange rate policies