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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. What is the first characteristic of lead strategy?
Firms future international earning power
Control the amount of money in circulation - enforced by government policies - focus on growth rate
An attempt to collect currency receivables early as result of expected depreciation
u.s. dollar

2. How do you insure or hedge against a Forex risk?
A common reference
Forward exchange or spot exchange
Intervention currency (peg country currency)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

3. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
True
Exchange rates are determined by the demand and supply for different currencies
Lending of funds in foreign currencies

4. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Large number of individuals and cos exchange of domestic currencies for a foreign currency

5. What causes big mac prices to vary?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Reserve currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages

6. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lending of funds in foreign currencies
True
Exchange rate policies

7. What are two methods of reducing translation and transaction exposure?
Establish central control and attempts to forecast future exchange rates
Forward exchange or spot exchange
Lead and lag strategies
State driven recapitalization are now needed

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

9. What are some strategies for managing forex risk?
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
Establish central control and attempts to forecast future exchange rates
Measurement of past events

10. What is the fourth roles of the U.S. dollar outside the U.S.?
Interest rates and money supply
Vehicle currency(transaction between 2 less commonly used 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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

11. What is the second thing that determines the Forex rates?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Interest rates and money supply
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

12. Burger economics!!! Why do we use it?
A common reference
Control the amount of money in circulation - enforced by government policies - focus on growth rate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates and forward rates

13. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
True
24/7
A common reference

14. How can transaction exposure be described?
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Investor psychology

15. What are the types of Exchange Rate Fluctuations?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
It helps them understand the influence of exchange rates on profitability of trade investment deals
Monetary and fiscal policies

16. What are some characteristics of swaps?
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
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
London - New York - Tokyo - and Singapore

17. What is capital fight when looking at it form investor psychology?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Monetary and fiscal policies
Relative price differences and ppp
Issue mo good loans so that profits from new business can eat away the losses form the bad

18. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Group of investors movement in the same direction and same time or government intervention
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Increase their exposure to banking -'s banking center

19. What are three factors that impact a country's future exchange rate movements?
Collecting & spending of money by the government
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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
Inflation - interest rate - and market psychology

20. When do countries use foreign exchange market?
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
Spot rates and forward rates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

21. What is the nature of the forex market?
Borrowing of funds in foreign currency
Group of investors movement in the same direction and same time or government intervention
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
Goods and services of one country can be exchanged for the goods and services of another country

22. What is the characteristic of translation expose?
Measurement of past events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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

23. What are the first two things that determine Forex rates?
Relative price differences and ppp
Monetary and fiscal policies
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

24. What is the first issue with EFSF?
Establish central control and attempts to forecast future exchange rates
agreed upon austerity
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

25. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
London - New York - Tokyo - and Singapore
Reserve currency

26. What is the first characteristic of transaction exposure ?
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
Productivity and balance payments
Firms future international earning power

27. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Currency of one country can be exchanged for the currency of another country
The income form individual transacations
Productivity and balance payments

28. Marekts are open...
24/7
u.s. dollar
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Exchange rate policies

29. What is the fifth thing that determines the forex rates?
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
A common reference
Borrowing of funds in foreign currency
Investor psychology

30. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
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
Monetary and fiscal policies

31. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
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

32. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay payables if currency is expected to depreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Affected by fluctuation in foreign exchange values

33. What are the two ways to reduce economic exposure?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Relative price differences and ppp

34. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
up to date
The income form individual transacations

35. What are some factors that influence exchange rates?
Lead and lag strategies
Currency of one country can be exchanged for the currency of another country
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

36. Most Transaction inovolve...
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Group of investors movement in the same direction and same time or government intervention
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

37. What is the law of one price?
Relative price differences and ppp
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
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

38. What is the second characteristic of transaction exposure?
Monetary and fiscal policies
Obligations for the purchase or sale of goods and services at previously agreed prices
domino effect
Measurement of past events

39. What is externally convertible currency
London - New York - Tokyo - and Singapore
Delay collection of foreign currency receivables if currency is exception to appreciate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

40. What is the fourth characteristic of transaction exposure?
Spot rates - forward rates - and swaps
Delay collection of foreign currency receivables if currency is exception to appreciate
Lead and lag strategies
Lending of funds in foreign currencies

41. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. distribute productive assets 2. ensure assets are not concentrated in countries
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Measurement of past events

42. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
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)
Relative price differences and ppp

43. What is the second issue with EFSF?
Increase currency values and protect against increases in foreign prices of goods and services
u.s. dollar
Establish central control and attempts to forecast future exchange rates
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

44. 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Delay payables if currency is expected to depreciate

45. What do monetary policies do?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

46. What is the third characteristic of transaction exposure?
Inflation - interest rate - and market psychology
Increase currency values and protect against increases in foreign prices of goods and services
Borrowing of funds in foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

47. What is the third thing that determines the forex rates?
Vehicle currency(transaction between 2 less commonly used 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
24/7
Productivity and balance payments

48. When do countries use the foreign exchange market?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Collecting & spending of money by the government
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.

49. What is free convertible currency?
Investor psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Delay collection of foreign currency receivables if currency is exception to appreciate

50. What are the two ways to quote currency?
Spot rates and forward rates
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are 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
London - New York - Tokyo - and Singapore