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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. What is free convertible 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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Paying foreign currency payable before dues as a result expected currency appreciation
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

2. 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Group of investors movement in the same direction and same time or government intervention
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

3. What is the second characteristic of lead strategy?
Transaction - translation and economic exposure
Delay collection of foreign currency receivables if currency is exception to appreciate
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Paying foreign currency payable before dues as a result expected currency appreciation

4. What is the third characteristic of transaction exposure?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency
Spot rates - forward rates - and swaps

5. 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
u.s. dollar
Exchange rates are determined by the demand and supply for different currencies
True

6. What is the second characteristic of lag strategy?
up to date
Banks stability was measure at a 5% capital adequacy ratio
Intervention currency (peg country currency)
Delay payables if currency is expected to depreciate

7. How do you insure or hedge against a Forex risk?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Forward exchange or spot exchange
Investor psychology
Interest rates and money supply

8. What is the law of one price?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Increase currency values and protect against increases in foreign prices of goods and services
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

9. What implications does understanding foreign exchange rates have on managers?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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. distribute productive assets 2. ensure assets are not concentrated in countries
It helps them understand the influence of exchange rates on profitability of trade investment deals

10. What is the fifth thing that determines the forex rates?
State driven recapitalization are now needed
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
Investor psychology

11. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Intervention currency (peg country currency)
Impact of currency exchange rate changes on reported financial statements

12. How can transaction exposure be described?
The income form individual transacations
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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

13. What is a spot rate?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

14. Greece has not defaulted because it has not been able to fully implement its...
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Banks stability was measure at a 5% capital adequacy ratio
agreed upon austerity

15. According to economic theories of exchage rate determination?
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
Exchange rates are determined by the demand and supply for different currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Spot rates and forward rates

16. What are three factors that impact a country's future exchange rate movements?
Relative price differences and ppp
Reserve currency
Inflation - interest rate - and market psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

17. Most Transaction inovolve...
u.s. dollar
Collecting & spending of money by the government
Borrowing of funds in foreign currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

18. Marekts are open...
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Intervention currency (peg country currency)
Impact of currency exchange rate changes on reported financial statements
24/7

19. What is capital fight when looking at it form investor psychology?
Goods and services of one country can be exchanged for the goods and services of another country
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Affected by fluctuation in foreign exchange values
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

20. What is the first characteristic of lag strategy?
Borrowing of funds in foreign currency
True
Delay collection of foreign currency receivables if currency is exception to appreciate
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

21. What is a currency swamp?
London - New York - Tokyo - and Singapore
Exchange rate policies
Group of investors movement in the same direction and same time or government intervention
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

22. When do countries use foreign exchange market?
Banks stability was measure at a 5% capital adequacy ratio
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
Monetary and fiscal policies

23. 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
Obligations for the purchase or sale of goods and services at previously agreed prices
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

24. What are the purposes of fiscal policies?
Collecting & spending of money by the government
True
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Investor psychology

25. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
u.s. dollar
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

26. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The income form individual transacations
Monetary and fiscal policies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

27. What is the nature of the forex market?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates and forward 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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

28. The euro faces risks fo recapitalization?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Banks stability was measure at a 5% capital adequacy ratio
A common reference
Relative price differences and ppp

29. What is the third role of the U.S. dollar outside the U.S.?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Collecting & spending of money by the government
Firms future international earning power
Reserve currency

30. What is the real exchange rate?
Forward exchange or spot exchange
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
Goods and services of one country can be exchanged for the goods and services of another country
Investor psychology

31. What is the nominal exchange rate?
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
Borrowing of funds in foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Currency of one country can be exchanged for the currency of another country

32. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Collecting & spending of money by the government
Spot rates and forward rates
London - New York - Tokyo - and Singapore

33. What are the two ways to quote currency?
Increase their exposure to banking -'s banking center
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Spot rates and forward rates
Forward exchange or spot exchange

34. When do countries use the foreign exchange market?
u.s. dollar
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Relative price differences and ppp

35. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
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
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference
True

36. What are the three ways of insuring against a Forex risk?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Spot rates - forward rates - and swaps
Relative price differences and ppp

37. What are some factors that influence exchange rates?
Establish central control and attempts to forecast future exchange rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Monetary and fiscal policies
It helps them understand the influence of exchange rates on profitability of trade investment deals

38. What is arbitrage?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Currency of one country can be exchanged for the currency of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

39. What is hedging?

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40. What is the first roels of the U.S. dollar outside the U.S.?
Increase their exposure to banking -'s banking center
agreed upon austerity
A common reference
Spot rates - forward rates - and swaps

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

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42. What is economic exposure?
Forward exchange or spot exchange
Firms future international earning power
Measurement of past events
Large number of individuals and cos exchange of domestic currencies for a foreign currency

43. What is externally convertible currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The income form individual transacations
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

44. What is the third thing that determines the forex rates?
Spot rates - forward rates - and swaps
The income form individual transacations
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
Productivity and balance payments

45. What is the characteristic of translation expose?
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. 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
Measurement of past events
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

46. What are the two ways to reduce economic exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Group of investors movement in the same direction and same time or government intervention
1. distribute productive assets 2. ensure assets are not concentrated in countries
An attempt to collect currency receivables early as result of expected depreciation

47. What is a forward rate?
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
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Establish central control and attempts to forecast future exchange rates

48. 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
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
up to date

49. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
24/7
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

50. It is important to stay __________ with your current events
Affected by fluctuation in foreign exchange values
up to date
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