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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 the nominal exchange rate?
Obligations for the purchase or sale of goods and services at previously agreed prices
London - New York - Tokyo - and Singapore
Relative price differences and ppp
Currency of one country can be exchanged for the currency of another country

2. What are the purposes of fiscal policies?
Increase currency values and protect against increases in foreign prices of goods and services
Increase their exposure to banking -'s banking center
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Collecting & spending of money by the government

3. What are some characteristics of swaps?
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
Transaction - translation and economic exposure
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

4. What is the second characteristic of lag strategy?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay payables if currency is expected to depreciate

5. What are the three different types of foreign exchange rate risks?
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates
Transaction - translation and economic exposure
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

6. What is economic exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values
Firms future international earning power
State driven recapitalization are now needed

7. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Impact of currency exchange rate changes on reported financial statements
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Collecting & spending of money by the government

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

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9. What causes big mac prices to vary?
Spot rates and forward rates
Currency of one country can be exchanged for the currency of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

10. 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
Measurement of past events
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Establish central control and attempts to forecast future exchange rates

11. What implications does understanding foreign exchange rates have on managers?
True
It helps them understand the influence of exchange rates on profitability of trade investment deals
A common reference
Exchange rates are determined by the demand and supply for different currencies

12. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
u.s. dollar
True
Interest rates and money supply

13. What is a currency swamp?
u.s. dollar
Banks stability was measure at a 5% capital adequacy ratio
Vehicle currency(transaction between 2 less commonly used currencies)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

14. What are the two ways to quote currency?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Spot rates and forward rates
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

15. Greece has not defaulted because it has not been able to fully implement its...
True
24/7
agreed upon austerity
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

16. What do monetary policies do?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

17. What is the first characteristic of lead strategy?
Collecting & spending of money by the government
u.s. dollar
An attempt to collect currency receivables early as result of expected depreciation
Relative price differences and ppp

18. What is a forward rate?
Increase their exposure to banking -'s banking center
Lead and lag strategies
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

19. What is the first characteristic of transaction exposure ?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Relative price differences and ppp

20. It is important to stay __________ with your current events
Issue mo good loans so that profits from new business can eat away the losses form the bad
up to date
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Affected by fluctuation in foreign exchange values

21. Burger economics!!! Why do we use it?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase currency values and protect against increases in foreign prices of goods and services
1. distribute productive assets 2. ensure assets are not concentrated in countries

22. What is hedging?

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23. What holds true to Purchase Power Parity Theory?
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

24. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
State driven recapitalization are now needed
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
Banks stability was measure at a 5% capital adequacy ratio

25. What are some factors that influence exchange rates?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

26. What are some strategies for managing forex risk?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Banks stability was measure at a 5% capital adequacy ratio
Establish central control and attempts to forecast future exchange rates
Borrowing of funds in foreign currency

27. What are the characteristics of economic exposure?
Transaction - translation and economic exposure
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The income form individual transacations
Exchange rate policies

28. Defaulting on debt has a __________ that intertwines all countries in Europe.
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
True
domino effect
Establish central control and attempts to forecast future exchange rates

29. How and What is the purpose of distributing assets?
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

30. What is externally convertible currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lending of funds in foreign currencies
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.

31. Bailout Fund of EFSF - What is this shiz nitz?
Productivity and balance payments
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Inflation - interest rate - and market psychology

32. What are the three ways of insuring against a Forex risk?
Exchange rates are determined by the demand and supply for different currencies
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values
Spot rates - forward rates - and swaps

33. What is the purpose of not concentrating assets in countries?
Impact of currency exchange rate changes on reported financial statements
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Increase currency values and protect against increases in foreign prices of goods and services
Investor psychology

34. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
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
True
Transaction - translation and economic exposure

35. What are the important trading centers?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Exchange rate policies
domino effect
London - New York - Tokyo - and Singapore

36. What are two methods of reducing translation and transaction exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Lead and lag strategies
Inflation - interest rate - and market psychology

37. What are three factors that impact a country's future exchange rate movements?
Establish central control and attempts to forecast future exchange rates
Inflation - interest rate - and market psychology
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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

38. What is non convertible currency?
Impact of currency exchange rate changes on reported financial statements
An attempt to collect currency receivables early as result of expected depreciation
The income form individual transacations
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

39. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

40. What is the third thing that determines the forex rates?
Lead and lag strategies
Delay collection of foreign currency receivables if currency is exception to appreciate
Productivity and balance payments
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

41. Most Transaction inovolve...
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Banks stability was measure at a 5% capital adequacy ratio
u.s. dollar
State driven recapitalization are now needed

42. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
up to date
Collecting & spending of money by the government
A common reference

43. What is the second issue with EFSF?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
agreed upon austerity
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
Firms future international earning power

44. What is the fifth thing that determines the forex rates?
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Investor psychology
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

45. What is the law of one price?
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
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

46. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Productivity and balance payments
Issue mo good loans so that profits from new business can eat away the losses form the bad
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

47. What are the first two things that determine Forex rates?
Relative price differences and ppp
Delay payables if currency is expected to depreciate
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country

48. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Currency of one country can be exchanged for the currency of another country

49. What is the fourth thing that determines the forex rates?
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
Exchange rate policies
Spot rates and forward rates
Lending of funds in foreign currencies

50. When do countries use foreign exchange market?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Banks stability was measure at a 5% capital adequacy ratio
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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