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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. What is arbitrage?
It helps them understand the influence of exchange rates on profitability of trade investment deals
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Vehicle currency(transaction between 2 less commonly used currencies)
Measurement of past events

2. What is the third role of the U.S. dollar outside the U.S.?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Reserve 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
Delay collection of foreign currency receivables if currency is exception to appreciate

3. Most Transaction inovolve...
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

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

5. What is the real exchange rate?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Goods and services of one country can be exchanged for the goods and services of another country
Affected by fluctuation in foreign exchange values
Increase currency values and protect against increases in foreign prices of goods and services

6. According to economic theories of exchage rate determination?
Interest rates and money supply
Exchange rates are determined by the demand and supply for different currencies
State driven recapitalization are now needed
An attempt to collect currency receivables early as result of expected depreciation

7. What is the third characteristic of transaction exposure?
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
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
Borrowing of funds in foreign currency

8. What is the law of one price?
Currency of one country can be exchanged for the currency of another country
Reserve currency
Measurement of past events
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

9. How and What is the purpose of distributing assets?
Delay payables if currency is expected to depreciate
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
Banks stability was measure at a 5% capital adequacy ratio

10. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Borrowing of funds in foreign currency
Increase their exposure to banking -'s banking center
Investor psychology

11. What are some strategies for managing forex risk?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Inflation - interest rate - and market psychology
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Establish central control and attempts to forecast future exchange rates

12. What are the first two things that determine Forex rates?
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Relative price differences and ppp

13. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Exchange rates are determined by the demand and supply for different currencies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

14. What is the fourth characteristic of transaction exposure?
Inflation - interest rate - and market psychology
Lending of funds in foreign currencies
Spot rates - forward rates - and swaps
Increase their exposure to banking -'s banking center

15. Marekts are open...
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
24/7
Increase their exposure to banking -'s banking center
Relative price differences and ppp

16. What is the nominal exchange rate?
Relative price differences and ppp
Currency of one country can be exchanged for the currency of another country
Intervention currency (peg country currency)
Banks stability was measure at a 5% capital adequacy ratio

17. Burger economics!!! Why do we use it?
Issue mo good loans so that profits from new business can eat away the losses form the bad
London - New York - Tokyo - and Singapore
1. distribute productive assets 2. ensure assets are not concentrated in countries
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

18. What is capital fight when looking at it form investor psychology?
Exchange rates are determined by the demand and supply for different currencies
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

19. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates - forward rates - and swaps
Collecting & spending of money by the government

20. What is the third thing that determines the forex rates?
Reserve currency
Productivity and balance payments
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase their exposure to banking -'s banking center

21. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
agreed upon austerity
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries

22. When do countries use foreign exchange market?
u.s. dollar
Large number of individuals and cos exchange of domestic currencies for a foreign 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
Exchange rates are determined by the demand and supply for different currencies

23. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
1. distribute productive assets 2. ensure assets are not concentrated in countries
True
Obligations for the purchase or sale of goods and services at previously agreed prices
Group of investors movement in the same direction and same time or government intervention

24. What is the fourth thing that determines the forex rates?
Exchange rate policies
Establish central control and attempts to forecast future exchange rates
up to date
Exchange rates are determined by the demand and supply for different currencies

25. What is the second 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
Investor psychology
Interest rates and money supply
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

26. What is economic exposure?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power
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

27. How do you insure or hedge against a Forex risk?
domino effect
Goods and services of one country can be exchanged for the goods and services of another country
Forward exchange or spot exchange
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

28. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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
Paying foreign currency payable before dues as a result expected currency appreciation

29. What are two methods of reducing translation and transaction exposure?
24/7
Measurement of past events
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies

30. It is important to stay __________ with your current events
Reserve currency
Impact of currency exchange rate changes on reported financial statements
up to date
Vehicle currency(transaction between 2 less commonly used currencies)

31. 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
Obligations for the purchase or sale of goods and services at previously agreed prices
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Collecting & spending of money by the government

32. What is the first roels of the U.S. dollar outside the U.S.?
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.
A common reference
Delay payables if currency is expected to depreciate

33. What do monetary policies do?
Reserve currency
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth 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

34. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Forward exchange or spot exchange
Productivity and balance payments

35. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
agreed upon austerity
True
An attempt to collect currency receivables early as result of expected depreciation

36. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency
Productivity and balance payments

37. 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
True
Goods and services of one country can be exchanged for the goods and services of another country

38. What are the purposes of fiscal policies?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad
Collecting & spending of money by the government
domino effect

39. 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
Impact of currency exchange rate changes on reported financial statements
Relative price differences and ppp
Exchange rates are determined by the demand and supply for different currencies

40. 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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Goods and services of one country can be exchanged for the goods and services of another country
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

41. What is a currency swamp?
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
Reserve currency
Exchange rate policies

42. What is the second characteristic of lag strategy?
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Delay payables if currency is expected to depreciate
24/7

43. What are the two ways to reduce economic exposure?
Firms future international earning power
Investor psychology
True
1. distribute productive assets 2. ensure assets are not concentrated in countries

44. What are the types of Exchange Rate Fluctuations?
State driven recapitalization are now needed
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Monetary and fiscal policies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

45. How do you establish central control?
Transaction - translation and economic 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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
State driven recapitalization are now needed

46. No single theory can explain explain the causes the value of currencies to change. True or False?
An attempt to collect currency receivables early as result of expected depreciation
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
True
Inflation - interest rate - and market psychology

47. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Currency of one country can be exchanged for the currency of another country
True
Delay collection of foreign currency receivables if currency is exception to appreciate

48. When do countries use the foreign exchange market?
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

49. What are the three ways of insuring against a Forex risk?
Relative price differences and ppp
The income form individual transacations
Spot rates - forward rates - and swaps
Firms future international earning power

50. What are the important trading centers?
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore
Monetary and fiscal policies
True