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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 a spot rate?
Firms future international earning power
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)
Delay payables if currency is expected to depreciate

2. The euro faces risks fo recapitalization?
agreed upon austerity
Firms future international earning power
Increase currency values and protect against increases in foreign prices of goods and services
Banks stability was measure at a 5% capital adequacy ratio

3. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
A common reference
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

4. What is the second thing that determines the Forex rates?
Interest rates and money supply
Lead and lag strategies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
It helps them understand the influence of exchange rates on profitability of trade investment deals

5. What are other strategies for managing forex risk?
agreed upon austerity
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply

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

7. What is the bandwagon effect when looking at form investor psychology ?
Measurement of past events
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Group of investors movement in the same direction and same time or government intervention

8. 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
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
up to date
Vehicle currency(transaction between 2 less commonly used currencies)

9. What are the two ways to quote currency?
Spot rates and forward 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
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

10. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Transaction - translation and economic exposure
Issue mo good loans so that profits from new business can eat away the losses form the bad
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

11. What is economic exposure?
Vehicle currency(transaction between 2 less commonly used currencies)
Firms future international earning power
Delay payables if currency is expected to depreciate
Collecting & spending of money by the government

12. What are two methods of reducing translation and transaction exposure?
London - New York - Tokyo - and Singapore
State driven recapitalization are now needed
Lead and lag strategies
Banks stability was measure at a 5% capital adequacy ratio

13. What is the second 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
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
Productivity and balance payments
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

14. Most Transaction inovolve...
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
u.s. dollar
It helps them understand the influence of exchange rates on profitability of trade investment deals
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

15. What is the purpose of not concentrating assets in countries?
Vehicle currency(transaction between 2 less commonly used currencies)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
A common reference
Increase currency values and protect against increases in foreign prices of goods and services

16. What is hedging?

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17. What holds true to Purchase Power Parity Theory?
Measurement of past events
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
up to date
Delay collection of foreign currency receivables if currency is exception to appreciate

18. Burger economics!!! Why do we use it?
Exchange rates are determined by the demand and supply for different currencies
domino effect
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

19. What is arbitrage?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Borrowing of funds in foreign currency
Affected by fluctuation in foreign exchange values

20. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates and forward rates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

21. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Inflation - interest rate - and market psychology
Transaction - translation and economic exposure
Exchange rates are determined by the demand and supply for different currencies

22. What is the first issue with EFSF?
A common reference
Delay payables if currency is expected to depreciate
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

23. What is the law of one price?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
u.s. dollar
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

24. What is the first roels of the U.S. dollar outside the U.S.?
Investor psychology
A common reference
Measurement of past events
The income form individual transacations

25. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Goods and services of one country can be exchanged for the goods and services of another country
Delay collection of foreign currency receivables if currency is exception to appreciate
Group of investors movement in the same direction and same time or government intervention

26. What are the types of Exchange Rate Fluctuations?
up to date
Monetary and fiscal policies
u.s. dollar
London - New York - Tokyo - and Singapore

27. What is the nature of the forex market?
Collecting & spending of money by the government
An attempt to collect currency receivables early as result of expected depreciation
London - New York - Tokyo - and Singapore
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

28. What is the first characteristic of lead strategy?
Reserve currency
An attempt to collect currency receivables early as result of expected depreciation
Transportation costs - trade barriers - and not trade inputs such as rents or wages
up to date

29. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Lead and lag strategies
State driven recapitalization are now needed
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
domino effect

30. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Borrowing of funds in foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
It helps them understand the influence of exchange rates on profitability of trade investment deals

31. What is the real exchange rate?
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
up to date
Goods and services of one country can be exchanged for the goods and services of another country
Impact of currency exchange rate changes on reported financial statements

32. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Delay collection of foreign currency receivables if currency is exception to appreciate
Vehicle currency(transaction between 2 less commonly used 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

33. How can transaction exposure be described?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The income form individual transacations
Vehicle currency(transaction between 2 less commonly used currencies)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

34. What is the fourth thing that determines the forex rates?
Paying foreign currency payable before dues as a result expected currency appreciation
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
Exchange rate policies

35. What is the characteristic of translation expose?
Measurement of past events
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
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

36. What is the fourth characteristic of transaction exposure?
Banks stability was measure at a 5% capital adequacy ratio
True
Lending of funds in foreign currencies
u.s. dollar

37. What are the purposes of fiscal policies?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Interest rates and money supply
Collecting & spending of money by the government
True

38. What is the third thing that determines the forex rates?
Exchange rates are determined by the demand and supply for different currencies
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments
Spot rates - forward rates - and swaps

39. Bailout Fund of EFSF - What is this shiz nitz?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
24/7
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

40. What are the two ways to reduce economic exposure?
Interest rates and money supply
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
Currency of one country can be exchanged for the currency of another country
1. distribute productive assets 2. ensure assets are not concentrated in countries

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

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42. When do countries use foreign exchange 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
London - New York - Tokyo - and Singapore
Spot rates - forward rates - and swaps
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

43. How do you establish central control?
24/7
Firms future international earning power
agreed upon austerity
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

44. What are the first two things that determine Forex rates?
Relative price differences and ppp
Firms future international earning power
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

45. Defaulting on debt has a __________ that intertwines all countries in Europe.
Exchange rate policies
Delay collection of foreign currency receivables if currency is exception to appreciate
domino effect
u.s. dollar

46. What is the fourth roles of the U.S. dollar outside the U.S.?
Intervention currency (peg country currency)
Vehicle currency(transaction between 2 less commonly used currencies)
domino effect
Exchange rates are determined by the demand and supply for different currencies

47. What is capital fight when looking at it form investor psychology?
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Group of investors movement in the same direction and same time or government intervention

48. When do countries use the foreign exchange market?
Transaction - translation and economic exposure
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Currency of one country can be exchanged for the currency of another country

49. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
domino effect
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency

50. It is important to stay __________ with your current events
Vehicle currency(transaction between 2 less commonly used currencies)
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
up to date