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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.
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 economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Firms future international earning power
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
Goods and services of one country can be exchanged for the goods and services of another country

2. What is the fourth thing that determines the forex rates?
agreed upon austerity
It helps them understand the influence of exchange rates on profitability of trade investment deals
Productivity and balance payments
Exchange rate policies

3. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
agreed upon austerity
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

4. What is capital fight when looking at it form investor psychology?
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
Paying foreign currency payable before dues as a result expected currency appreciation
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

5. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
1. distribute productive assets 2. ensure assets are not concentrated in countries
Affected by fluctuation in foreign exchange values
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

6. How can transaction exposure be described?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
The income form individual transacations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

7. 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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Inflation - interest rate - and market psychology
State driven recapitalization are now needed

8. What are two methods of reducing translation and transaction exposure?
24/7
Lead and lag strategies
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
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

9. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Lead and lag strategies
Group of investors movement in the same direction and same time or government intervention
Issue mo good loans so that profits from new business can eat away the losses form the bad

10. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Vehicle currency(transaction between 2 less commonly used currencies)
Lending of funds in foreign currencies
The income form individual transacations
State driven recapitalization are now needed

11. What is the first characteristic of lag strategy?
Exchange rate policies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

12. What do monetary policies do?
Investor psychology
Intervention currency (peg country currency)
Productivity and balance payments
Control the amount of money in circulation - enforced by government policies - focus on growth rate

13. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Currency of one country can be exchanged for the currency of another country
Spot rates - forward rates - and swaps

14. What are the first two things that determine Forex rates?
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
Forward exchange or spot exchange
Relative price differences and ppp
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

15. What are three factors that impact a country's future exchange rate movements?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Reserve currency
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

16. It is important to stay __________ with your current events
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date

17. What are the characteristics of economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Interest rates and money supply
Measurement of past events

18. How do you establish central control?
24/7
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

19. What is the second characteristic of lag strategy?
Establish central control and attempts to forecast future exchange rates
Delay payables if currency is expected to depreciate
Collecting & spending of money by the government
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

20. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Spot rates and forward rates
Currency of one country can be exchanged for the currency of another country
Lending of funds in foreign currencies

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

22. What is a forward rate?
It helps them understand the influence of exchange rates on profitability of trade investment deals
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Inflation - interest rate - and market psychology
Spot rates - forward rates - and swaps

23. What is the characteristic of translation expose?
Inflation - interest rate - and market psychology
24/7
Measurement of past events
Delay collection of foreign currency receivables if currency is exception to appreciate

24. 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
Affected by fluctuation in foreign exchange values
An attempt to collect currency receivables early as result of expected depreciation
Forward exchange or spot exchange

25. What are some strategies for managing forex risk?
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
Vehicle currency(transaction between 2 less commonly used 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

26. 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
Inflation - interest rate - and market psychology
Firms future international earning power
An attempt to collect currency receivables early as result of expected depreciation

27. What is the first characteristic of transaction exposure ?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The income form individual transacations
Affected by fluctuation in foreign exchange values

28. Most Transaction inovolve...
domino effect
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
u.s. dollar
Investor psychology

29. What causes big mac prices to vary?
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
Firms future international earning power
Spot rates - forward rates - and swaps

30. What are the purposes of fiscal policies?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Goods and services of one country can be exchanged for the goods and services of another country
Collecting & spending of money by the government
Intervention currency (peg country currency)

31. What is the law of one price?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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. protect resources efficiently 2. ensure correct mix of tactics and strategies
Intervention currency (peg country currency)

32. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
London - New York - Tokyo - and Singapore
24/7
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

33. 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
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
Productivity and balance payments

34. What is the third thing that determines the forex rates?
Productivity and balance payments
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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

35. What is hedging?

36. What is the real 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
Goods and services of one country can be exchanged for the goods and services of another country
Lead and lag strategies
Intervention currency (peg country currency)

37. Defaulting on debt has a __________ that intertwines all countries in Europe.
Transaction - translation and economic exposure
Banks stability was measure at a 5% capital adequacy ratio
Lending of funds in foreign currencies
domino effect

38. How do you insure or hedge against a Forex risk?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Vehicle currency(transaction between 2 less commonly used currencies)
Forward exchange or spot exchange
Increase currency values and protect against increases in foreign prices of goods and services

39. What is non convertible currency?
Spot rates - forward rates - and swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

40. Marekts are open...
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
agreed upon austerity
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
24/7

41. How can translation exposure be described?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
State driven recapitalization are now needed
Impact of currency exchange rate changes on reported financial statements
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

42. What is the fourth roles 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Vehicle currency(transaction between 2 less commonly used currencies)

43. What is the second characteristic of lead strategy?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation
domino effect
Establish central control and attempts to forecast future exchange rates

44. What is the bandwagon effect when looking at form investor psychology ?
up to date
Group of investors movement in the same direction and same time or government intervention
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

45. What are the important trading centers?
Spot rates and forward rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
London - New York - Tokyo - and Singapore
Relative price differences and ppp

46. What is the second role of the U.S. dollar outside the U.S. ?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Intervention currency (peg country currency)
An attempt to collect currency receivables early as result of expected depreciation
domino effect

47. What are the two ways to quote currency?
It helps them understand the influence of exchange rates on profitability of trade investment deals
London - New York - Tokyo - and Singapore
Spot rates and forward rates
Relative price differences and ppp

48. What is a spot rate?
A common reference
Increase their exposure to banking -'s banking center
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Vehicle currency(transaction between 2 less commonly used currencies)

49. 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
Banks stability was measure at a 5% capital adequacy ratio
Reserve currency
Goods and services of one country can be exchanged for the goods and services of another country

50. What are the three ways of insuring against a Forex risk?
Delay payables if currency is expected to depreciate
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps
Investor psychology