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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 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
Productivity and balance payments
domino effect
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

2. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Goods and services of one country can be exchanged for the goods and services of another country
Delay payables if currency is expected to depreciate
State driven recapitalization are now needed

3. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
True
Group of investors movement in the same direction and same time or government intervention

4. What is the fourth characteristic of transaction exposure?
Delay payables if currency is expected to depreciate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Lending of funds in foreign currencies
Transaction - translation and economic exposure

5. What are the characteristics of economic exposure?
True
1. distribute productive assets 2. ensure assets are not concentrated 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

6. What are the first two things that determine Forex rates?
Relative price differences and ppp
Establish central control and attempts to forecast future exchange rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Control the amount of money in circulation - enforced by government policies - focus on growth rate

7. Most Transaction inovolve...
Forward exchange or spot exchange
Spot rates - forward rates - and swaps
u.s. dollar
An attempt to collect currency receivables early as result of expected depreciation

8. Burger economics!!! Why do we use it?
Relative price differences and ppp
Impact of currency exchange rate changes on reported financial statements
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Productivity and balance payments

9. What is the law of one price?
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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
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

10. What are some characteristics of swaps?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Paying foreign currency payable before dues as a result expected currency appreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

11. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Vehicle currency(transaction between 2 less commonly used currencies)

12. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Productivity and balance payments
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Control the amount of money in circulation - enforced by government policies - focus on growth rate

13. What is economic exposure?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Firms future international earning power
Lead and lag strategies

14. What is the second role of the U.S. dollar outside the U.S. ?
Measurement of past events
Intervention currency (peg country currency)
u.s. dollar
Increase currency values and protect against increases in foreign prices of goods and services

15. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rates are determined by the demand and supply for different currencies
Transportation costs - trade barriers - and not trade inputs such as rents or wages

16. How do you establish central control?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Measurement of past events
Forward exchange or spot exchange

17. Bailout Fund of EFSF - What is this shiz nitz?
domino effect
Firms future international earning power
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

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

19. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Collecting & spending of money by the government
Lead and lag strategies

20. What is the purpose of not concentrating assets in countries?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates - forward rates - and swaps
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

21. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
London - New York - Tokyo - and Singapore
Relative price differences and ppp

22. Defaulting on debt has a __________ that intertwines all countries in Europe.
Exchange rate policies
domino effect
Lending of funds in foreign currencies
u.s. dollar

23. What is the bandwagon effect when looking at form investor psychology ?
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
Group of investors movement in the same direction and same time or government intervention
Exchange rates are determined by the demand and supply for different currencies
Goods and services of one country can be exchanged for the goods and services of another country

24. What is the first issue with EFSF?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Delay collection of foreign currency receivables if currency is exception to appreciate
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

25. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Investor psychology
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Increase currency values and protect against increases in foreign prices of goods and services

26. Greece has not defaulted because it has not been able to fully implement its...
Forward exchange or spot exchange
Group of investors movement in the same direction and same time or government intervention
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
agreed upon austerity

27. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Spot rates and forward rates
Inflation - interest rate - and market psychology

28. What is a currency swamp?
Increase currency values and protect against increases in foreign prices of goods and services
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Banks stability was measure at a 5% capital adequacy ratio
State driven recapitalization are now needed

29. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Relative price differences and ppp

30. What is capital fight when looking at it form investor psychology?
Vehicle currency(transaction between 2 less commonly used currencies)
Relative price differences and ppp
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Obligations for the purchase or sale of goods and services at previously agreed prices

31. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
domino effect
24/7
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

32. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
domino effect
Monetary and fiscal policies
Increase their exposure to banking -'s banking center

33. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

34. What is the first characteristic of lead strategy?
Forward exchange or spot exchange
An attempt to collect currency receivables early as result of expected depreciation
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Lead and lag strategies

35. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
London - New York - Tokyo - and Singapore
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

36. What is non convertible currency?
Firms future international earning power
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rates are determined by the demand and supply for different currencies
Impact of currency exchange rate changes on reported financial statements

37. What is the nature of the forex market?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
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
Banks stability was measure at a 5% capital adequacy ratio

38. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
24/7
Investor psychology
Exchange rate policies

39. Marekts are open...
24/7
Measurement of past events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Transaction - translation and economic exposure

40. What is arbitrage?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Delay collection of foreign currency receivables if currency is exception to appreciate
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)

41. What is hedging?

42. What is the fourth thing that determines the forex rates?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
The income form individual transacations

43. No single theory can explain explain the causes the value of currencies to change. True or False?
Lending of funds in foreign currencies
True
Borrowing of funds in foreign currency
Monetary and fiscal policies

44. What is the characteristic of translation expose?
Obligations for the purchase or sale of goods and services at previously agreed prices
Measurement of past events
Intervention currency (peg country currency)
Inflation - interest rate - and market psychology

45. What are the three different types of foreign exchange rate risks?
agreed upon austerity
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Transaction - translation and economic exposure
Paying foreign currency payable before dues as a result expected currency appreciation

46. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Firms future international earning power
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

47. What causes big mac prices to vary?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Productivity and balance payments
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rates are determined by the demand and supply for different currencies

48. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Transaction - translation and economic exposure
Spot rates - forward rates - and swaps
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

49. What are the types of Exchange Rate Fluctuations?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Paying foreign currency payable before dues as a result expected currency appreciation
Interest rates and money supply
Monetary and fiscal policies

50. When do countries use foreign exchange market?
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
Firms future international earning power
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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