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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...
agreed upon austerity
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Impact of currency exchange rate changes on reported financial statements
u.s. dollar

2. How can translation exposure be described?
True
Impact of currency exchange rate changes on reported financial statements
Exchange rates are determined by the demand and supply for different currencies
Monetary and fiscal policies

3. What is the real exchange rate?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply
Goods and services of one country can be exchanged for the goods and services of another country
Forward exchange or spot exchange

4. It is important to stay __________ with your current events
Group of investors movement in the same direction and same time or government intervention
Borrowing of funds in foreign currency
up to date
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

5. What is free convertible currency?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
Measurement of past events

6. What is a forward rate?
24/7
Paying foreign currency payable before dues as a result expected currency appreciation
Establish central control and attempts to forecast future exchange rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

7. What is the first characteristic of lag strategy?
up to date
Increase currency values and protect against increases in foreign prices of goods and services
Delay collection of foreign currency receivables if currency is exception to appreciate
Investor psychology

8. What do monetary policies do?
Lending of funds in foreign currencies
The income form individual transacations
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

9. What is the first characteristic of lead strategy?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Currency of one country can be exchanged for the currency of another country
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

10. When do countries use foreign exchange market?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Measurement of past events
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
State driven recapitalization are now needed

11. What are the three different types of foreign exchange rate risks?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Transaction - translation and economic exposure
Obligations for the purchase or sale of goods and services at previously agreed prices

12. What are the two ways to quote currency?
Spot rates and forward rates
An attempt to collect currency receivables early as result of expected depreciation
Large number of individuals and cos exchange of domestic currencies for a foreign currency
agreed upon austerity

13. What are some strategies for managing forex risk?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
up to date
Establish central control and attempts to forecast future exchange rates
Exchange rate policies

14. Burger economics!!! Why do we use it?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

15. The euro faces risks fo recapitalization?
Interest rates and money supply
u.s. dollar
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology

16. When do countries use the foreign exchange market?
Delay payables if currency is expected to depreciate
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
Measurement of past events

17. What is arbitrage?
Inflation - interest rate - and market psychology
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

18. What holds true to Purchase Power Parity Theory?
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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
Banks stability was measure at a 5% capital adequacy ratio

19. What are some characteristics of swaps?
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Forward exchange or spot exchange

20. Bailout Fund of EFSF - What is this shiz nitz?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

21. What is the third thing that determines the forex rates?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Exchange rate policies
Relative price differences and ppp
Productivity and balance payments

22. What are two methods of reducing translation and transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
u.s. dollar
Lead and lag strategies
Delay payables if currency is expected to depreciate

23. What is the second thing that determines the Forex rates?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
A common reference
domino effect
Interest rates and money supply

24. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
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
Forward exchange or spot exchange

25. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Affected by fluctuation in foreign exchange values
State driven recapitalization are now needed
Intervention currency (peg country currency)

26. What is a spot rate?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Banks stability was measure at a 5% capital adequacy ratio
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

27. What is the third characteristic of transaction exposure?
Lending of funds in foreign currencies
Borrowing of funds in foreign currency
Relative price differences and ppp
Obligations for the purchase or sale of goods and services at previously agreed prices

28. What is the second issue with EFSF?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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 process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
A common reference

29. What is the fifth thing that determines the forex rates?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay collection of foreign currency receivables if currency is exception to appreciate
It helps them understand the influence of exchange rates on profitability of trade investment deals
Investor psychology

30. What implications does understanding foreign exchange rates have on managers?
24/7
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals
An attempt to collect currency receivables early as result of expected depreciation

31. What is a currency swamp?
The income form individual transacations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Collecting & spending of money by the government
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

32. What is the fourth characteristic of transaction exposure?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Lending of funds in foreign currencies
The income form individual transacations
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

33. What is the fourth thing that determines the forex rates?
Exchange rate policies
Spot rates - forward rates - and swaps
An attempt to collect currency receivables early as result of expected depreciation
Inflation - interest rate - and market psychology

34. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Forward exchange or spot exchange
Transaction - translation and economic exposure
Borrowing of funds in foreign currency

35. How can transaction exposure be described?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
The income form individual transacations
Obligations for the purchase or sale of goods and services at previously agreed prices
up to date

36. What is the bandwagon effect when looking at form investor psychology ?
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
Intervention currency (peg country 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)

37. What is the third role of the U.S. dollar outside the U.S.?
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
Reserve currency
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
Affected by fluctuation in foreign exchange values

38. What is the nature of the forex market?
Forward exchange or spot exchange
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

39. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

40. What is externally convertible currency
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
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

41. What is the first issue with EFSF?
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
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

42. What are the important trading centers?
Delay collection of foreign currency receivables if currency is exception to appreciate
London - New York - Tokyo - and Singapore
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

43. What are the purposes of fiscal policies?
Reserve currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Collecting & spending of money by the government
Goods and services of one country can be exchanged for the goods and services of another country

44. What are the characteristics of economic exposure?
Exchange rates are determined by the demand and supply for different currencies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Goods and services of one country can be exchanged for the goods and services of another country
Lead and lag strategies

45. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
The income form individual transacations

46. What is economic exposure?
Firms future international earning power
An attempt to collect currency receivables early as result of expected depreciation
Exchange rate policies
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

47. What are other strategies for managing forex risk?
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
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

48. What is the first roels of the U.S. dollar outside the U.S.?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
A common reference
An attempt to collect currency receivables early as result of expected depreciation

49. What is the second characteristic of transaction exposure?
Investor psychology
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Obligations for the purchase or sale of goods and services at previously agreed prices
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

50. How and What is the purpose of distributing assets?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Goods and services of one country can be exchanged for the goods and services of another country
agreed upon austerity
domino effect