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. It is important to stay __________ with your current events
Inflation - interest rate - and market 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
Measurement of past events
up to date

2. What is the fourth characteristic of transaction exposure?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Forward exchange or spot exchange

3. What is non convertible currency?
Paying foreign currency payable before dues as a result expected currency appreciation
Borrowing of funds in foreign currency
domino effect
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

4. What is the second characteristic of lead strategy?
True
Lending of funds in foreign currencies
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

5. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Lead and lag strategies
Relative price differences and ppp
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

6. What is capital fight when looking at it form investor psychology?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Large number of individuals and cos exchange of domestic currencies for a foreign currency

7. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Interest rates and money supply
Firms future international earning power
Control the amount of money in circulation - enforced by government policies - focus on growth rate

8. What are other strategies for managing forex risk?
True
domino effect
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Interest rates and money supply

9. What are two methods of reducing translation and transaction exposure?
Monetary and fiscal policies
Issue mo good loans so that profits from new business can eat away the losses form the bad
Lead and lag strategies
Transaction - translation and economic exposure

10. What is the fifth thing that determines the forex rates?
Interest rates and money supply
Affected by fluctuation in foreign exchange values
Investor psychology
An attempt to collect currency receivables early as result of expected depreciation

11. No single theory can explain explain the causes the value of currencies to change. True or False?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True

12. What are some factors that influence exchange rates?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Spot rates and forward rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Delay payables if currency is expected to depreciate

13. How can transaction exposure be described?
Lead and lag strategies
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
Delay payables if currency is expected to depreciate
The income form individual transacations

14. What is a forward 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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
Spot rates - forward rates - and swaps

15. What is the first characteristic of transaction exposure ?
Impact of currency exchange rate changes on reported financial statements
Banks stability was measure at a 5% capital adequacy ratio
Affected by fluctuation in foreign exchange values
Transaction - translation and economic exposure

16. What is the nature of the forex market?
up to date
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
Lead and lag strategies
Paying foreign currency payable before dues as a result expected currency appreciation

17. 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
Borrowing of funds in foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Transaction - translation and economic exposure

18. What are the three ways of insuring against a Forex risk?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
True
Spot rates - forward rates - and swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

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

20. What is the second role of the U.S. dollar outside the U.S. ?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Intervention currency (peg country currency)
Issue mo good loans so that profits from new business can eat away the losses form the bad
Currency of one country can be exchanged for the currency of another country

21. What is economic exposure?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power
Reserve currency
Increase their exposure to banking -'s banking center

22. Greece has not defaulted because it has not been able to fully implement its...
Reserve currency
agreed upon austerity
Obligations for the purchase or sale of goods and services at previously agreed prices
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

23. According to economic theories of exchage rate determination?
up to date
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Exchange rates are determined by the demand and supply for different currencies
Intervention currency (peg country currency)

24. Burger economics!!! Why do we use it?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Inflation - interest rate - and market psychology
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

25. What are the first two things that determine Forex 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
The income form individual transacations
Firms future international earning power
Relative price differences and ppp

26. How and What is the purpose of distributing assets?
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
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

27. What are the two ways to reduce economic exposure?
True
1. distribute productive assets 2. ensure assets are not concentrated in countries
London - New York - Tokyo - and Singapore
Increase their exposure to banking -'s banking center

28. What is arbitrage?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Paying foreign currency payable before dues as a result expected currency appreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
up to date

29. What is the second characteristic of transaction exposure?
Inflation - interest rate - and market psychology
Affected by fluctuation in foreign exchange values
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Obligations for the purchase or sale of goods and services at previously agreed prices

30. What are the types of Exchange Rate Fluctuations?
Inflation - interest rate - and market psychology
Affected by fluctuation in foreign exchange values
Monetary and fiscal policies
Increase currency values and protect against increases in foreign prices of goods and services

31. What is the third characteristic of transaction exposure?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
A common reference
Borrowing of funds in foreign currency
Inflation - interest rate - and market psychology

32. What are the two ways to quote currency?
Increase currency values and protect against increases in foreign prices of goods and services
True
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

33. 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
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay collection of foreign currency receivables if currency is exception to appreciate

34. What are the important trading centers?
Currency of one country can be exchanged for the currency of another country
Monetary and fiscal policies
Spot rates and forward rates
London - New York - Tokyo - and Singapore

35. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Exchange rates are determined by the demand and supply for different currencies
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
Currency of one country can be exchanged for the currency of another country
True

36. What is the second issue with EFSF?
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
Goods and services of one country can be exchanged for the goods and services of another country
An attempt to collect currency receivables early as result of expected depreciation

37. What is the second thing that determines the Forex rates?
Interest rates and money supply
Exchange rate policies
Lead and lag strategies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

38. What is hedging?

39. How do you establish central control?
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
agreed upon austerity

40. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Relative price differences and ppp
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
Forward exchange or spot exchange

41. What is the third role of the U.S. dollar outside the U.S.?
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
Reserve currency
Lending of funds in foreign currencies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

42. What implications does understanding foreign exchange rates have on managers?
London - New York - Tokyo - and Singapore
It helps them understand the influence of exchange rates on profitability of trade investment deals
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values

43. What are the three different types of foreign exchange rate risks?
Paying foreign currency payable before dues as a result expected currency appreciation
Transaction - translation and economic exposure
True
Investor psychology

44. What is the purpose of not concentrating assets in countries?
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
Group of investors movement in the same direction and same time or government intervention
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

45. What are the characteristics of economic exposure?
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
Delay payables if currency is expected to depreciate
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

46. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
up to date
Intervention currency (peg country currency)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

47. What do monetary policies do?
Intervention currency (peg country currency)
Borrowing of funds in foreign currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

48. What is the fourth thing that determines the forex rates?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Exchange rate policies
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
Productivity and balance payments

49. 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.
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
Impact of currency exchange rate changes on reported financial statements
The income form individual transacations

50. What is the third thing that determines the forex rates?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Establish central control and attempts to forecast future exchange rates
The income form individual transacations
Productivity and balance payments