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Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

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. What is the characteristic of translation expose?
Measurement of past events
Currency of one country can be exchanged for the currency of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad
Paying foreign currency payable before dues as a result expected currency appreciation

2. What holds true to Purchase Power Parity Theory?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Measurement of past events
Collecting & spending of money by the government

3. How and What is the purpose of distributing assets?
It helps them understand the influence of exchange rates on profitability of trade investment deals
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Vehicle currency(transaction between 2 less commonly used currencies)
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

4. What is the first issue with EFSF?
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
Intervention currency (peg country currency)
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries

5. What are other strategies for managing forex risk?
Reserve currency
Transaction - translation and economic exposure
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Spot rates - forward rates - and swaps

6. What is the second thing that determines the Forex rates?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Goods and services of one country can be exchanged for the goods and services of another country
Interest rates and money supply
Forward exchange or spot exchange

7. What are the important trading centers?
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
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps

8. When do countries use the foreign exchange market?
Currency of one country can be exchanged for the currency of another country
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

9. What is free convertible currency?
Increase their exposure to banking -'s banking center
agreed upon austerity
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Productivity and balance payments

10. It is important to stay __________ with your current events
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
up to date
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

11. What is the nature of the forex market?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Impact of currency exchange rate changes on reported financial statements
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

12. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Relative price differences and ppp
True
Delay payables if currency is expected to depreciate
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

13. How do you insure or hedge against a Forex risk?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Lead and lag strategies
State driven recapitalization are now needed
Forward exchange or spot exchange

14. What is capital fight when looking at it form investor psychology?
Transaction - translation and economic exposure
Banks stability was measure at a 5% capital adequacy ratio
Large number of individuals and cos exchange of domestic currencies for a foreign currency
True

15. What implications does understanding foreign exchange rates have on managers?
Relative price differences and ppp
Forward exchange or spot exchange
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It helps them understand the influence of exchange rates on profitability of trade investment deals

16. What is the second characteristic of transaction exposure?
Increase currency values and protect against increases in foreign prices of goods and services
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Obligations for the purchase or sale of goods and services at previously agreed prices

17. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Reserve currency
Delay collection of foreign currency receivables if currency is exception to appreciate
Large number of individuals and cos exchange of domestic currencies for a foreign currency

18. Bailout Fund of EFSF - What is this shiz nitz?
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Increase their exposure to banking -'s banking center

19. What are the three ways of insuring against a Forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Spot rates - forward rates - and swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The income form individual transacations

20. What are three factors that impact a country's future exchange rate movements?
Exchange rates are determined by the demand and supply for different currencies
An attempt to collect currency receivables early as result of expected depreciation
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
Inflation - interest rate - and market psychology

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

22. What is the first roels of the U.S. dollar outside the U.S.?
Establish central control and attempts to forecast future exchange rates
A common reference
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
State driven recapitalization are now needed

23. What is the third role of the U.S. dollar outside the U.S.?
Spot rates and forward rates
Vehicle currency(transaction between 2 less commonly used currencies)
Reserve currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

24. What are the first two things that determine Forex rates?
up to date
Interest rates and money supply
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
Relative price differences and ppp

25. What is a currency swamp?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The income form individual transacations

26. What is the fourth thing that determines the forex rates?
domino effect
Exchange rate policies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

27. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

28. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Transaction - translation and economic exposure
u.s. dollar
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

29. How can transaction exposure be described?
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
Inflation - interest rate - and market psychology
The income form individual transacations
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

30. What are some factors that influence exchange rates?
domino effect
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

31. What are the characteristics of economic exposure?
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad
Inflation - interest rate - and market psychology

32. What are the three different types of foreign exchange rate risks?
Spot rates - forward rates - and swaps
True
Relative price differences and ppp
Transaction - translation and economic exposure

33. What are some strategies for managing forex risk?
Lending of funds in foreign currencies
Establish central control and attempts to forecast future exchange rates
Issue mo good loans so that profits from new business can eat away the losses form the bad
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

34. What is hedging?

35. The euro faces risks fo recapitalization?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply

36. What is externally convertible currency
True
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

37. What is the fifth thing that determines the forex rates?
Relative price differences and ppp
Investor psychology
Vehicle currency(transaction between 2 less commonly used currencies)
Lending of funds in foreign currencies

38. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Firms future international earning power

39. What is the purpose of not concentrating assets in countries?
These transactions are used when need to move out of one currency into another - they are for a limited period - there is no foreign exchange rate risk
Increase currency values and protect against increases in foreign prices of goods and services
Delay collection of foreign currency receivables if currency is exception to appreciate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

40. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies
up to date

41. What are some characteristics of swaps?
These transactions are used when need to move out of one currency into another - they are for a limited period - there is no foreign exchange rate risk
Impact of currency exchange rate changes on reported financial statements
Paying foreign currency payable before dues as a result expected currency appreciation
Establish central control and attempts to forecast future exchange rates

42. What is the law of one price?
These transactions are used when need to move out of one currency into another - they are for a limited period - there is no foreign exchange rate risk
Inflation - interest rate - and market 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
domino effect

43. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
An attempt to collect currency receivables early as result of expected depreciation

44. What is the bandwagon effect when looking at form investor psychology ?
Goods and services of one country can be exchanged for the goods and services of another country
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Group of investors movement in the same direction and same time or government intervention
Forward exchange or spot exchange

45. What is a forward rate?
Spot rates and forward rates
A common reference
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

46. What are the two ways to quote currency?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates and forward rates

47. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Impact of currency exchange rate changes on reported financial statements
Reserve currency
True

48. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
domino effect
up to date
Paying foreign currency payable before dues as a result expected currency appreciation

49. Burger economics!!! Why do we use it?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Forward exchange or spot exchange
1. distribute productive assets 2. ensure assets are not concentrated in countries

50. What do monetary policies do?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Monetary and fiscal policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Forward exchange or spot exchange