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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 second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Firms future international earning power
Control the amount of money in circulation - enforced by government policies - focus on growth rate
London - New York - Tokyo - and Singapore

2. What are the two ways to reduce economic exposure?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Delay collection of foreign currency receivables if currency is exception to appreciate
Investor psychology

3. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Transaction - translation and economic exposure
Increase their exposure to banking -'s banking center
Paying foreign currency payable before dues as a result expected currency appreciation

4. What are the important trading centers?
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
A common reference
Increase their exposure to banking -'s banking center

5. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
u.s. dollar
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
domino effect

6. What are some characteristics of swaps?
Exchange rate policies
Goods and services of one country can be exchanged for the goods and services of another country
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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

7. What is hedging?

8. What is the third thing that determines the forex rates?
up to date
domino effect
Productivity and balance payments
A common reference

9. What is non convertible currency?
u.s. dollar
Intervention currency (peg country currency)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services

10. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Collecting & spending of money by the government
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
Borrowing of funds in foreign currency

11. What is economic exposure?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Firms future international earning power
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

12. What are the first two things that determine Forex rates?
Lending of funds in foreign currencies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Spot rates - forward rates - and swaps
Relative price differences and ppp

13. What is the first characteristic of lag strategy?
The income form individual transacations
Delay collection of foreign currency receivables if currency is exception to appreciate
agreed upon austerity
Spot rates - forward rates - and swaps

14. What are some strategies for managing forex risk?
Reserve currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Establish central control and attempts to forecast future exchange rates
Spot rates and forward rates

15. What is the fourth roles of the U.S. dollar outside the U.S.?
u.s. dollar
Establish central control and attempts to forecast future exchange rates
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rate policies

16. What is the second role of the U.S. dollar outside the U.S. ?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
An attempt to collect currency receivables early as result of expected depreciation
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Intervention currency (peg country currency)

17. What are the three different types of foreign exchange rate risks?
An attempt to collect currency receivables early as result of expected depreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
A common reference
Transaction - translation and economic exposure

18. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Goods and services of one country can be exchanged for the goods and services of another country
Inflation - interest rate - and market psychology
agreed upon austerity

19. Burger economics!!! Why do we use it?
Group of investors movement in the same direction and same time or government intervention
Spot rates - forward rates - and swaps
Issue mo good loans so that profits from new business can eat away the losses form the bad
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

20. What is the law of one price?
Exchange rate 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
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
Exchange rates are determined by the demand and supply for different currencies

21. What is a currency swamp?
Borrowing of funds in foreign currency
Lending of funds in foreign currencies
Issue mo good loans so that profits from new business can eat away the losses form the bad
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

22. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Affected by fluctuation in foreign exchange values
London - New York - Tokyo - and Singapore
The income form individual transacations

23. What causes big mac prices to vary?
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Transaction - translation and economic exposure

24. What is the second issue with EFSF?
Paying foreign currency payable before dues as a result expected currency appreciation
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Exchange rate policies
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 is a spot rate?
Collecting & spending of money by the government
True
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 exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

26. What is the real exchange rate?
domino effect
Intervention currency (peg country currency)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Goods and services of one country can be exchanged for the goods and services of another country

27. What is the nature of the forex 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
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
Measurement of past events
Monetary and fiscal policies

28. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
An attempt to collect currency receivables early as result of expected depreciation
Relative price differences and ppp
Forward exchange or spot exchange

29. What is the purpose of not concentrating assets in countries?
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
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
An attempt to collect currency receivables early as result of expected depreciation

30. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange 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

31. Marekts are open...
24/7
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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
domino effect

32. What is the characteristic of translation expose?
Interest rates and money supply
Exchange rates are determined by the demand and supply for different currencies
Vehicle currency(transaction between 2 less commonly used currencies)
Measurement of past events

33. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Monetary and fiscal policies
Delay collection of foreign currency receivables if currency is exception to appreciate
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

34. What is capital fight when looking at it form investor psychology?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Collecting & spending of money by the government
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

35. When do countries use foreign exchange market?
Monetary and fiscal policies
u.s. dollar
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
Collecting & spending of money by the government

36. How can transaction exposure be described?
A common reference
Lending of funds in foreign currencies
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
The income form individual transacations

37. 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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference
Forward exchange or spot exchange

38. 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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
An attempt to collect currency receivables early as result of expected depreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

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

40. 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
A common reference
Increase currency values and protect against increases in foreign prices of goods and services
Goods and services of one country can be exchanged for the goods and services of another country

41. Defaulting on debt has a __________ that intertwines all countries in Europe.
True
Delay collection of foreign currency receivables if currency is exception to appreciate
domino effect
Borrowing of funds in foreign currency

42. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Increase currency values and protect against increases in foreign prices of goods and services
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
State driven recapitalization are now needed

43. What are some factors that influence 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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Banks stability was measure at a 5% capital adequacy ratio
Paying foreign currency payable before dues as a result expected currency appreciation

44. What is the first issue with EFSF?
Relative price differences and ppp
Spot rates and forward rates
Increase currency values and protect against increases in foreign prices of goods and services
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

45. Most Transaction inovolve...
Banks stability was measure at a 5% capital adequacy ratio
Increase currency values and protect against increases in foreign prices of goods and services
u.s. dollar
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

46. What is the fourth thing that determines the forex rates?
Exchange rate policies
Firms future international earning power
Lending of funds in foreign currencies
Inflation - interest rate - and market psychology

47. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Delay payables if currency is expected to depreciate
Issue mo good loans so that profits from new business can eat away the losses form the bad
Monetary and fiscal policies

48. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

49. It is important to stay __________ with your current events
Issue mo good loans so that profits from new business can eat away the losses form the bad
up to date
Transaction - translation and economic exposure
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

50. What is the fourth characteristic of transaction exposure?
London - New York - Tokyo - and Singapore
Issue mo good loans so that profits from new business can eat away the losses form the bad
Lending of funds 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