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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. No single theory can explain explain the causes the value of currencies to change. True or False?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Inflation - interest rate - and market psychology
True
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

2. 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
Delay payables if currency is expected to depreciate
Intervention currency (peg country currency)
up to date

3. How can transaction exposure be described?
Obligations for the purchase or sale of goods and services at previously agreed prices
Affected by fluctuation in foreign exchange values
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The income form individual transacations

4. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Obligations for the purchase or sale of goods and services at previously agreed prices
Firms future international earning power
Issue mo good loans so that profits from new business can eat away the losses form the bad
Control the amount of money in circulation - enforced by government policies - focus on growth rate

5. What are the two ways to reduce economic exposure?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. distribute productive assets 2. ensure assets are not concentrated in countries
Lending of funds in foreign currencies

6. What is the fourth characteristic of transaction exposure?
Relative price differences and ppp
Lending of funds in foreign currencies
Establish central control and attempts to forecast future exchange rates
Spot rates - forward rates - and swaps

7. What is the fifth thing that determines the forex rates?
Affected by fluctuation in foreign exchange values
Investor psychology
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

8. What is the first characteristic of lead strategy?
Transaction - translation and economic exposure
Impact of currency exchange rate changes on reported financial statements
Large number of individuals and cos exchange of domestic currencies for a foreign currency
An attempt to collect currency receivables early as result of expected depreciation

9. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Impact of currency exchange rate changes on reported financial statements
Large number of individuals and cos exchange of domestic currencies for a foreign currency
True
24/7

10. What are the three different types of foreign exchange rate risks?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Measurement of past events
Transaction - translation and economic exposure
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

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

12. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Intervention currency (peg country currency)

13. What is non convertible currency?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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

14. What are three factors that impact a country's future exchange rate movements?
Investor psychology
Inflation - interest rate - and market psychology
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by fluctuation in foreign exchange values

15. Marekts are open...
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
u.s. dollar
24/7

16. What is a currency swamp?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

17. What holds true to Purchase Power Parity Theory?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Intervention currency (peg country currency)
Relative price differences and ppp
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

18. What are some factors that influence exchange rates?
The income form individual transacations
It helps them understand the influence of exchange rates on profitability of trade investment deals
Transaction - translation and economic exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

19. What are the first two things that determine Forex rates?
Impact of currency exchange rate changes on reported financial statements
Relative price differences and ppp
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
Forward exchange or spot exchange

20. What is the second 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
Measurement of past events
Obligations for the purchase or sale of goods and services at previously agreed prices
Issue mo good loans so that profits from new business can eat away the losses form the bad

21. What is arbitrage?
Lending of funds in foreign currencies
Productivity and balance payments
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

22. What is the fourth thing that determines the forex rates?
Increase their exposure to banking -'s banking center
Spot rates - forward rates - and swaps
Exchange rate policies
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

23. What is the first roels of the U.S. dollar outside the U.S.?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
A common reference

24. What is economic exposure?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Transaction - translation and economic exposure
Firms future international earning power

25. What are the characteristics of economic exposure?
A common reference
State driven recapitalization are now needed
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

26. What are other strategies for managing forex risk?
Increase their exposure to banking -'s banking center
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Investor psychology

27. What causes big mac prices to vary?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Measurement of past events
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

28. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
domino effect
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

29. What is the purpose of not concentrating assets in countries?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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)
Inflation - interest rate - and market psychology

30. Defaulting on debt has a __________ that intertwines all countries in Europe.
Collecting & spending of money by the government
Spot rates and forward rates
Measurement of past events
domino effect

31. How do you establish central control?
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates - forward rates - and swaps
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

32. What are the two ways to quote currency?
Spot rates and forward rates
Lead and lag strategies
Interest rates and money supply
Impact of currency exchange rate changes on reported financial statements

33. What are the three ways of insuring against a Forex risk?
Exchange rates are determined by the demand and supply for different currencies
Spot rates - forward rates - and swaps
Monetary and fiscal policies
Paying foreign currency payable before dues as a result expected currency appreciation

34. What is a forward rate?
Increase their exposure to banking -'s banking center
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

35. What are the purposes of fiscal policies?
Lending of funds in foreign currencies
Collecting & spending of money by the government
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Exchange rate policies

36. What is free convertible currency?
An attempt to collect currency receivables early as result of expected depreciation
agreed upon austerity
Group of investors movement in the same direction and same time or government intervention
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

37. What is the first issue with EFSF?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Transaction - translation and economic exposure
The income form individual transacations

38. How and What is the purpose of distributing assets?
Forward exchange or spot exchange
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country

39. What are the types of Exchange Rate Fluctuations?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
True
1. distribute productive assets 2. ensure assets are not concentrated in countries
Monetary and fiscal policies

40. What are some characteristics of swaps?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad
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

41. What is the first characteristic of lag strategy?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay collection of foreign currency receivables if currency is exception to appreciate
Firms future international earning power
It helps them understand the influence of exchange rates on profitability of trade investment deals

42. How do you insure or hedge against a Forex risk?
Group of investors movement in the same direction and same time or government intervention
Forward exchange or spot exchange
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.

43. What is externally convertible currency
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Lead and lag strategies
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

44. Bailout Fund of EFSF - What is this shiz nitz?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Issue mo good loans so that profits from new business can eat away the losses form the bad
True
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

45. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Spot rates and forward rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
24/7

46. What is the second role of the U.S. dollar outside the U.S. ?
Goods and services of one country can be exchanged for the goods and services of another country
Monetary and fiscal policies
Intervention currency (peg country currency)
Exchange rate policies

47. How can translation exposure be described?
Relative price differences and ppp
24/7
Impact of currency exchange rate changes on reported financial statements
The income form individual transacations

48. What is the nominal exchange rate?
Reserve currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Banks stability was measure at a 5% capital adequacy ratio
Currency of one country can be exchanged for the currency of another country

49. It is important to stay __________ with your current events
agreed upon austerity
It helps them understand the influence of exchange rates on profitability of trade investment deals
up to date
True

50. What are some strategies for managing forex risk?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Establish central control and attempts to forecast future exchange rates
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