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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. Most Transaction inovolve...
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
London - New York - Tokyo - and Singapore
u.s. dollar

2. When do countries use the foreign exchange market?
Paying foreign currency payable before dues as a result expected currency appreciation
Increase currency values and protect against increases in foreign prices of goods and services
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

3. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
London - New York - Tokyo - and Singapore
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
An attempt to collect currency receivables early as result of expected depreciation

4. What is the first roels of the U.S. dollar outside the U.S.?
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
A common reference
Obligations for the purchase or sale of goods and services at previously agreed prices
London - New York - Tokyo - and Singapore

5. What is the purpose of not concentrating assets in countries?
Transaction - translation and economic exposure
u.s. dollar
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Increase currency values and protect against increases in foreign prices of goods and services

6. Bailout Fund of EFSF - What is this shiz nitz?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Group of investors movement in the same direction and same time or government intervention
1. distribute productive assets 2. ensure assets are not concentrated in countries
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

7. What is the first characteristic of lead strategy?
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation
State driven recapitalization are now needed
Inflation - interest rate - and market psychology

8. It is important to stay __________ with your current events
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
up to date
Banks stability was measure at a 5% capital adequacy ratio
Increase their exposure to banking -'s banking center

9. What is the second issue with EFSF?
Inflation - interest rate - and market psychology
Banks stability was measure at a 5% capital adequacy ratio
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 income form individual transacations

10. No single theory can explain explain the causes the value of currencies to change. True or False?
up to date
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True

11. What are some strategies for managing forex risk?
Currency of one country can be exchanged for the currency of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Establish central control and attempts to forecast future exchange rates

12. What is a spot rate?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Inflation - interest rate - and market psychology
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

13. What are the three ways of insuring against a Forex risk?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Intervention currency (peg country currency)
Exchange rate policies
Spot rates - forward rates - and swaps

14. What are other strategies for managing forex risk?
up to date
Investor psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
State driven recapitalization are now needed

15. What is the fourth roles of the U.S. dollar outside the U.S.?
Borrowing of funds in foreign currency
Collecting & spending of money by the government
Vehicle currency(transaction between 2 less commonly used currencies)
Transportation costs - trade barriers - and not trade inputs such as rents or wages

16. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
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
Establish central control and attempts to forecast future exchange rates

17. What is economic exposure?
Firms future international earning power
24/7
State driven recapitalization are now needed
Interest rates and money supply

18. What is the real exchange rate?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Collecting & spending of money by the government
Banks stability was measure at a 5% capital adequacy ratio
Goods and services of one country can be exchanged for the goods and services of another country

19. What is the fifth thing that determines the forex rates?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Investor psychology
True

20. How and What is the purpose of distributing assets?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates - forward rates - and swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

21. What are three factors that impact a country's future exchange rate movements?
State driven recapitalization are now needed
Inflation - interest rate - and market psychology
True
Obligations for the purchase or sale of goods and services at previously agreed prices

22. What is arbitrage?
Lead and lag strategies
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
Impact of currency exchange rate changes on reported financial statements

23. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
A common reference
Banks stability was measure at a 5% capital adequacy ratio
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

24. What is the second characteristic of lead strategy?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Paying foreign currency payable before dues as a result expected currency appreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True

25. What are some characteristics of swaps?
Establish central control and attempts to forecast future 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
Vehicle currency(transaction between 2 less commonly used currencies)
Impact of currency exchange rate changes on reported financial statements

26. 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
Affected by fluctuation in foreign exchange values
u.s. dollar

27. What is the nature of the forex market?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
An attempt to collect currency receivables early as result of expected depreciation
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

28. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Inflation - interest rate - and market psychology
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries

29. What is the law of one price?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Currency of one country can be exchanged for the currency of another country
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
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

30. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
Obligations for the purchase or sale of goods and services at previously agreed prices
Relative price differences and ppp
Affected by fluctuation in foreign exchange values

31. What is the second characteristic of transaction exposure?
Collecting & spending of money by the government
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Lending of funds in foreign currencies
Obligations for the purchase or sale of goods and services at previously agreed prices

32. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Relative price differences and ppp
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
domino effect

33. What are the three different types of foreign exchange rate risks?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Transaction - translation and economic exposure
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Obligations for the purchase or sale of goods and services at previously agreed prices

34. What is the fourth thing that determines the forex rates?
Increase their exposure to banking -'s banking center
Currency of one country can be exchanged for the currency of another country
Exchange rate policies
Inflation - interest rate - and market psychology

35. 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
True
Investor psychology
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

36. How do you insure or hedge against a Forex risk?
up to date
Forward exchange or spot exchange
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates - forward rates - and swaps

37. What is the first issue with EFSF?
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
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
Affected by fluctuation in foreign exchange values
Investor psychology

38. What is non convertible currency?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Both residents and on residents are prohibited from converting their holdings of domestic currency into a 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
An attempt to collect currency receivables early as result of expected depreciation

39. What is the first characteristic of lag strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
It helps them understand the influence of exchange rates on profitability of trade investment deals
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

40. What are the two ways to reduce economic exposure?
Impact of currency exchange rate changes on reported financial statements
1. distribute productive assets 2. ensure assets are not concentrated in countries
Paying foreign currency payable before dues as a result expected currency appreciation
Intervention currency (peg country currency)

41. 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
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies

42. What are the types of Exchange Rate Fluctuations?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Monetary and fiscal policies
Measurement of past events

43. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Group of investors movement in the same direction and same time or government intervention
Spot rates - forward rates - and swaps
Forward exchange or spot exchange

44. What is the third characteristic of transaction exposure?
up to date
It helps them understand the influence of exchange rates on profitability of trade investment deals
Goods and services of one country can be exchanged for the goods and services of another country
Borrowing of funds in foreign currency

45. Burger economics!!! Why do we use it?
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
u.s. dollar
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

46. What are the purposes of fiscal policies?
Impact of currency exchange rate changes on reported financial statements
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates and forward rates
Collecting & spending of money by the government

47. What is a currency swamp?
Intervention currency (peg country 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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
up to date

48. How can translation exposure be described?
Interest rates and money supply
Increase currency values and protect against increases in foreign prices of goods and services
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Impact of currency exchange rate changes on reported financial statements

49. What are some factors that influence exchange rates?
Increase currency values and protect against increases in foreign prices of goods and services
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

50. When do countries use foreign exchange market?
Banks stability was measure at a 5% capital adequacy ratio
Transaction - translation and economic exposure
Increase currency values and protect against increases in foreign prices of goods and services
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

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Foreign Exchange Market

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