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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 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
up to date
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
24/7

2. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Collecting & spending of money by the government
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

3. What is a currency swamp?
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
agreed upon austerity

4. What is the nominal exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Currency of one country can be exchanged for the currency of another country
Obligations for the purchase or sale of goods and services at previously agreed prices

5. What are the two ways to quote currency?
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
Currency of one country can be exchanged for the currency of another country
Spot rates and forward rates

6. When do countries use foreign exchange market?
Lead and lag strategies
Large number of individuals and cos exchange of domestic currencies for a foreign 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
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

7. What are some factors that influence exchange rates?
agreed upon austerity
Issue mo good loans so that profits from new business can eat away the losses form the bad
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Interest rates and money supply

8. What are other strategies for managing forex risk?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Exchange rates are determined by the demand and supply for different currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

9. Burger economics!!! Why do we use it?
Intervention currency (peg country currency)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

10. What are two methods of reducing translation and transaction exposure?
Intervention currency (peg country currency)
Lead and lag strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Delay payables if currency is expected to depreciate

11. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Relative price differences and ppp
The income form individual transacations
Lead and lag strategies

12. 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
Interest rates and money supply
Lending of funds in foreign currencies

13. Bailout Fund of EFSF - What is this shiz nitz?
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Monetary and fiscal policies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

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

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15. When do countries use the foreign exchange market?
Productivity and balance payments
Delay collection of foreign currency receivables if currency is exception to appreciate
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

16. What are the three ways of insuring against a Forex risk?
Interest rates and money supply
Increase their exposure to banking -'s banking center
Spot rates - forward rates - and swaps
Impact of currency exchange rate changes on reported financial statements

17. What is the characteristic of translation expose?
Exchange rate policies
Reserve currency
24/7
Measurement of past events

18. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
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
Impact of currency exchange rate changes on reported financial statements

19. How do you establish central control?
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
24/7
State driven recapitalization are now needed
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

20. What is the purpose of not concentrating assets in countries?
True
Increase currency values and protect against increases in foreign prices of goods and services
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)

21. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Borrowing of funds in foreign currency
London - New York - Tokyo - and Singapore

22. What are the first two things that determine Forex rates?
Relative price differences and ppp
Monetary and fiscal policies
Spot rates - forward rates - and swaps
Transaction - translation and economic exposure

23. 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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference
London - New York - Tokyo - and Singapore

24. 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
Interest rates and money supply
Vehicle currency(transaction between 2 less commonly used currencies)
An attempt to collect currency receivables early as result of expected depreciation

25. What is the third characteristic of transaction exposure?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Borrowing of funds in foreign currency
Intervention currency (peg country currency)
agreed upon austerity

26. What are the important trading centers?
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore
Interest rates and money supply
It helps them understand the influence of exchange rates on profitability of trade investment deals

27. What are the three different types of foreign exchange rate risks?
Investor psychology
Borrowing of funds in foreign 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
Transaction - translation and economic exposure

28. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Group of investors movement in the same direction and same time or government intervention
Borrowing of funds in foreign currency

29. What is a spot rate?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
domino effect

30. What is the real exchange rate?
Intervention currency (peg country currency)
Interest rates and money supply
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

31. What is the second characteristic of lag strategy?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Delay payables if currency is expected to depreciate
True
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

32. What is the third role of the U.S. dollar outside the U.S.?
Delay collection of foreign currency receivables if currency is exception to appreciate
Reserve currency
Productivity and balance payments
up to date

33. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation

34. What is capital fight when looking at it form investor psychology?
Relative price differences and ppp
Inflation - interest rate - and market psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

35. What is the first characteristic of transaction exposure ?
Delay payables if currency is expected to depreciate
Affected by fluctuation in foreign exchange values
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Increase currency values and protect against increases in foreign prices of goods and services

36. Most Transaction inovolve...
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
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

37. What is the second issue with EFSF?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
up to date
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

38. What is arbitrage?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Currency of one country can be exchanged for the currency of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages

39. What is the bandwagon effect when looking at 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
A common reference
Group of investors movement in the same direction and same time or government intervention

40. What are some characteristics of swaps?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Exchange rate policies

41. No single theory can explain explain the causes the value of currencies to change. True or False?
domino effect
Establish central control and attempts to forecast future exchange rates
Obligations for the purchase or sale of goods and services at previously agreed prices
True

42. What is hedging?

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43. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
u.s. dollar
Impact of currency exchange rate changes on reported financial statements
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

44. What is the fourth thing that determines the forex rates?
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
Exchange rate policies
1. distribute productive assets 2. ensure assets are not concentrated in countries

45. Marekts are open...
The income form individual transacations
True
24/7
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

46. What is externally convertible currency
Interest rates and money supply
Transaction - translation and economic exposure
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
u.s. dollar

47. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Exchange rate policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True

48. It is important to stay __________ with your current events
up to date
Establish central control and attempts to forecast future exchange rates
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
Productivity and balance payments

49. What are three factors that impact a country's future exchange rate movements?
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 and forward rates
Forward exchange or spot exchange
Inflation - interest rate - and market psychology

50. What is free convertible currency?
Intervention currency (peg country currency)
Forward exchange or spot exchange
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency