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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 the third characteristic of transaction exposure?
Group of investors movement in the same direction and same time or government intervention
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
Paying foreign currency payable before dues as a result expected currency appreciation
Borrowing of funds in foreign currency

2. What are some characteristics of swaps?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Increase currency values and protect against increases in foreign prices of goods and services
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
Exchange rates are determined by the demand and supply for different currencies

3. What is the second characteristic of transaction exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Obligations for the purchase or sale of goods and services at previously agreed prices
A common reference
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

4. What is the second thing that determines the Forex rates?
Interest rates and money supply
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

5. What is hedging?

6. What do monetary policies do?
Transaction - translation and economic exposure
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp

7. What is the first characteristic of lead strategy?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
An attempt to collect currency receivables early as result of expected depreciation
up to date

8. What is economic exposure?
Firms future international earning power
Issue mo good loans so that profits from new business can eat away the losses form the bad
Inflation - interest rate - and market psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

9. What is the law of one price?
Goods and services of one country can be exchanged for the goods and services of another country
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
True

10. What is the first characteristic of lag strategy?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Firms future international earning power
Delay collection of foreign currency receivables if currency is exception to appreciate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

11. Greece has not defaulted because it has not been able to fully implement its...
Productivity and balance payments
agreed upon austerity
Exchange rates are determined by the demand and supply for different currencies
An attempt to collect currency receivables early as result of expected depreciation

12. What is the characteristic of translation expose?
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
Measurement of past events
Intervention currency (peg country currency)

13. What is the nature of the forex market?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

14. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Issue mo good loans so that profits from new business can eat away the losses form the bad
True
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

15. What is a currency swamp?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

16. What is the first issue with EFSF?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Spot rates and forward rates
Lending of funds in foreign currencies

17. What is the second characteristic of lead strategy?
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
Productivity and balance payments
Paying foreign currency payable before dues as a result expected currency appreciation

18. 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
Monetary and fiscal policies
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
Forward exchange or spot exchange

19. Bailout Fund of EFSF - What is this shiz nitz?
Increase their exposure to banking -'s banking center
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Inflation - interest rate - and market psychology
An attempt to collect currency receivables early as result of expected depreciation

20. According to economic theories of exchage rate determination?
u.s. dollar
Exchange rates are determined by the demand and supply for different currencies
Spot rates - forward rates - and swaps
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

21. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The income form individual transacations
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

22. What is the fifth thing that determines the forex rates?
agreed upon austerity
Investor psychology
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

23. What are the three ways of insuring against a Forex risk?
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
Spot rates - forward rates - and swaps
Banks stability was measure at a 5% capital adequacy ratio

24. The euro faces risks fo recapitalization?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Goods and services of one country can be exchanged for the goods and services of another country
Banks stability was measure at a 5% capital adequacy ratio
Impact of currency exchange rate changes on reported financial statements

25. What is externally convertible currency
Exchange rates are determined by the demand and supply for different currencies
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)
Intervention currency (peg country currency)

26. When do countries use foreign exchange market?
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries
Obligations for the purchase or sale of goods and services at previously agreed prices
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

27. What holds true to Purchase Power Parity Theory?
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
Spot rates - forward rates - and swaps
Establish central control and attempts to forecast future exchange rates
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

28. No single theory can explain explain the causes the value of currencies to change. True or False?
Establish central control and attempts to forecast future exchange rates
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True

29. What are two methods of reducing translation and transaction exposure?
Borrowing of funds in foreign currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
24/7
Lead and lag strategies

30. What is the second issue with EFSF?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

31. 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore

32. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
True
Affected by fluctuation in foreign exchange values
Delay payables if currency is expected to depreciate
State driven recapitalization are now needed

33. What is the fourth roles of the U.S. dollar outside the U.S.?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Vehicle currency(transaction between 2 less commonly used currencies)

34. What is the first roels of the U.S. dollar outside the U.S.?
u.s. dollar
Establish central control and attempts to forecast future exchange rates
A common reference
Monetary and fiscal policies

35. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

36. What are some strategies for managing forex risk?
agreed upon austerity
Productivity and balance payments
Establish central control and attempts to forecast future exchange rates
Interest rates and money supply

37. Most Transaction inovolve...
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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. 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

38. What is the purpose of not concentrating assets in countries?
Interest rates and money supply
Increase currency values and protect against increases in foreign prices of goods and services
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Impact of currency exchange rate changes on reported financial statements

39. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Goods and services of one country can be exchanged for the goods and services of another country
Increase their exposure to banking -'s banking center
Vehicle currency(transaction between 2 less commonly used currencies)

40. What are other strategies for managing forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Relative price differences and ppp
London - New York - Tokyo - and Singapore
Establish central control and attempts to forecast future exchange rates

41. How can transaction exposure be described?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Exchange rate policies
Relative price differences and ppp
The income form individual transacations

42. Marekts are open...
24/7
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Inflation - interest rate - and market psychology
Exchange rate policies

43. What is a forward rate?
u.s. dollar
Impact of currency exchange rate changes on reported financial statements
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
It helps them understand the influence of exchange rates on profitability of trade investment deals

44. What is the bandwagon effect when looking at form investor psychology ?
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Impact of currency exchange rate changes on reported financial statements

45. How do you establish central control?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Group of investors movement in the same direction and same time or government intervention
Firms future international earning power

46. How can translation exposure be described?
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Vehicle currency(transaction between 2 less commonly used currencies)
Group of investors movement in the same direction and same time or government intervention

47. How do you insure or hedge against a Forex risk?
Productivity and balance payments
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Increase their exposure to banking -'s banking center
Forward exchange or spot exchange

48. When do countries use the foreign exchange market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are 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
Delay collection of foreign currency receivables if currency is exception to appreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

49. Burger economics!!! Why do we use it?
Transaction - translation and economic 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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Monetary and fiscal policies

50. What is non convertible currency?
Increase their exposure to banking -'s banking center
Paying foreign currency payable before dues as a result expected currency appreciation
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