Test your basic knowledge |

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. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
London - New York - Tokyo - and Singapore
Collecting & spending of money by the government
Inflation - interest rate - and market psychology

2. What is capital fight when looking at it form investor psychology?
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Lending of funds in foreign currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

3. What are the types of Exchange Rate Fluctuations?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Exchange rate policies
Monetary and fiscal policies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

4. What is the nominal exchange rate?
True
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
Currency of one country can be exchanged for the currency of another country
Measurement of past events

5. What are the first two things that determine Forex rates?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Reserve currency
Relative price differences and ppp
True

6. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Banks stability was measure at a 5% capital adequacy ratio
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Vehicle currency(transaction between 2 less commonly used currencies)

7. 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
Banks stability was measure at a 5% capital adequacy ratio
Spot rates - forward rates - and swaps
Transportation costs - trade barriers - and not trade inputs such as rents or wages

8. What is hedging?

9. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Productivity and balance payments
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

10. It is important to stay __________ with your current events
The income form individual transacations
Intervention currency (peg country currency)
up to date
Paying foreign currency payable before dues as a result expected currency appreciation

11. Most Transaction inovolve...
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
u.s. dollar
Exchange rates are determined by the demand and supply for different currencies

12. What is economic exposure?
Delay collection of foreign currency receivables if currency is exception to appreciate
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
Firms future international earning power
u.s. dollar

13. What is the purpose of not concentrating assets in countries?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Reserve currency
Increase currency values and protect against increases in foreign prices of goods and services
Issue mo good loans so that profits from new business can eat away the losses form the bad

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

15. What are some characteristics of swaps?
Interest rates and money supply
Increase currency values and protect against increases in foreign prices of goods and services
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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

16. What do monetary policies do?
1. distribute productive assets 2. ensure assets are not concentrated in countries
State driven recapitalization are now needed
Control the amount of money in circulation - enforced by government policies - focus on growth rate
It helps them understand the influence of exchange rates on profitability of trade investment deals

17. What are the three different types of foreign exchange rate risks?
Banks stability was measure at a 5% capital adequacy ratio
agreed upon austerity
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
Transaction - translation and economic exposure

18. What is the second issue with EFSF?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Transaction - translation and economic exposure
Paying foreign currency payable before dues as a result expected currency appreciation
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

19. What is the second characteristic of transaction exposure?
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
Obligations for the purchase or sale of goods and services at previously agreed prices
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

20. What are the three ways of insuring against a Forex risk?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Measurement of past events
Spot rates - forward rates - and swaps

21. What is the law of one price?
Collecting & spending of money by the government
Lending of funds in foreign 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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

22. What is the nature of the forex market?
London - New York - Tokyo - and Singapore
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
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

23. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Measurement of past events
Lead and lag strategies
Spot rates - forward rates - and swaps

24. What is the third role of the U.S. dollar outside the U.S.?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Reserve currency
Investor psychology
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

25. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Intervention currency (peg country currency)
domino effect

26. How do you establish central control?
domino effect
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
State driven recapitalization are now needed

27. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

28. What is the fourth thing that determines the forex rates?
Exchange rate policies
Goods and services of one country can be exchanged for the goods and services of another country
Delay collection of foreign currency receivables if currency is exception to appreciate
Transaction - translation and economic exposure

29. When do countries use the foreign exchange market?
Inflation - interest rate - and market psychology
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

30. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
State driven recapitalization are now needed
Firms future international earning power
Collecting & spending of money by the government
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

31. Defaulting on debt has a __________ that intertwines all countries in Europe.
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp
domino effect
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

32. How and What is the purpose of distributing assets?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Borrowing of funds in foreign currency
Exchange rate policies
Investor psychology

33. Greece has not defaulted because it has not been able to fully implement its...
Productivity and balance payments
agreed upon austerity
State driven recapitalization are now needed
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

34. Bailout Fund of EFSF - What is this shiz nitz?
Spot rates - forward rates - and swaps
Reserve currency
Inflation - interest rate - and market psychology
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

35. What is arbitrage?
Currency of one country can be exchanged for the currency of another country
It helps them understand the influence of exchange rates on profitability of trade investment deals
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Group of investors movement in the same direction and same time or government intervention

36. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Establish central control and attempts to forecast future exchange rates
Relative price differences and ppp
Collecting & spending of money by the government

37. What is the first roels 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
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference
24/7

38. What implications does understanding foreign exchange rates have on managers?
24/7
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Lending of funds in foreign currencies
It helps them understand the influence of exchange rates on profitability of trade investment deals

39. What are three factors that impact a country's future exchange rate movements?
Increase their exposure to banking -'s banking center
Inflation - interest rate - and market psychology
Affected by fluctuation in foreign exchange values
Lending of funds in foreign currencies

40. What is free convertible currency?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Impact of currency exchange rate changes on reported financial statements
True
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

41. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Group of investors movement in the same direction and same time or government intervention
Currency of one country can be exchanged for the currency of another country
up to date

42. What is the second characteristic of lead strategy?
Reserve currency
An attempt to collect currency receivables early as result of expected depreciation
Collecting & spending of money by the government
Paying foreign currency payable before dues as a result expected currency appreciation

43. What is the second role of the U.S. dollar outside the U.S. ?
domino effect
Intervention currency (peg country currency)
Obligations for the purchase or sale of goods and services at previously agreed prices
London - New York - Tokyo - and Singapore

44. What is the bandwagon effect when looking at form investor psychology ?
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
Transaction - translation and economic exposure
Group of investors movement in the same direction and same time or government intervention
Transportation costs - trade barriers - and not trade inputs such as rents or wages

45. What are the characteristics of economic exposure?
Exchange rate policies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Lead and lag strategies
Group of investors movement in the same direction and same time or government intervention

46. What is the second thing that determines the Forex rates?
Collecting & spending of money by the government
Interest rates and money supply
Affected by fluctuation in foreign exchange values
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

47. Marekts are open...
Issue mo good loans so that profits from new business can eat away the losses form the bad
Reserve currency
24/7
Transaction - translation and economic exposure

48. What is the third characteristic of transaction exposure?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
An attempt to collect currency receivables early as result of expected depreciation
up to date
Borrowing of funds in foreign currency

49. What is externally convertible currency
Productivity and balance payments
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

50. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay collection of foreign currency receivables if currency is exception to appreciate