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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 third role of the U.S. dollar outside the U.S.?
Inflation - interest rate - and market psychology
Reserve currency
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

2. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The income form individual transacations

3. The euro faces risks fo recapitalization?
Investor psychology
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Banks stability was measure at a 5% capital adequacy ratio
Inflation - interest rate - and market psychology

4. 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
State driven recapitalization are now needed
Interest rates and money supply
Delay collection of foreign currency receivables if currency is exception to appreciate

5. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates and forward rates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

6. What is the second characteristic of lag strategy?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Delay payables if currency is expected to depreciate
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Obligations for the purchase or sale of goods and services at previously agreed prices

7. It is important to stay __________ with your current events
Interest rates and money supply
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
up to date
Productivity and balance payments

8. How can transaction exposure be described?
Intervention currency (peg country currency)
Goods and services of one country can be exchanged for the goods and services of another country
An attempt to collect currency receivables early as result of expected depreciation
The income form individual transacations

9. What are some strategies for managing forex risk?
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Establish central control and attempts to forecast future exchange rates
Inflation - interest rate - and market psychology

10. What is hedging?

11. What is a currency swamp?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

12. What is the fourth roles of the U.S. dollar outside the U.S.?
True
Vehicle currency(transaction between 2 less commonly used currencies)
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

13. What are the two ways to quote currency?
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Spot rates and forward rates

14. What are the three ways of insuring against a Forex risk?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
State driven recapitalization are now needed
Delay payables if currency is expected to depreciate
Spot rates - forward rates - and swaps

15. What causes big mac prices to vary?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
London - New York - Tokyo - and Singapore
Transportation costs - trade barriers - and not trade inputs such as rents or wages
True

16. How can translation exposure be described?
An attempt to collect currency receivables early as result of expected depreciation
Impact of currency exchange rate changes on reported financial statements
domino effect
Spot rates - forward rates - and swaps

17. What is 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
Firms future international earning power
Exchange rate policies
Exchange rates are determined by the demand and supply for different currencies

18. What are some characteristics of swaps?
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
Banks stability was measure at a 5% capital adequacy ratio
Delay collection of foreign currency receivables if currency is exception to appreciate
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

19. What implications does understanding foreign exchange rates have on managers?
The income form individual transacations
Group of investors movement in the same direction and same time or government intervention
A common reference
It helps them understand the influence of exchange rates on profitability of trade investment deals

20. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Inflation - interest rate - and market psychology

21. Most Transaction inovolve...
Impact of currency exchange rate changes on reported financial statements
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
u.s. dollar
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

22. What are the characteristics of economic exposure?
The income form individual transacations
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Investor psychology
Currency of one country can be exchanged for the currency of another country

23. What are the first two things that determine Forex rates?
The income form individual transacations
up to date
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Relative price differences and ppp

24. What is the third thing that determines the forex rates?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
up to date
Productivity and balance payments
Investor psychology

25. How do you insure or hedge against a Forex risk?
Interest rates and money supply
Spot rates and forward rates
Forward exchange or spot exchange
Spot rates - forward rates - and swaps

26. What is the real exchange rate?
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

27. What is the fourth thing that determines the forex rates?
Exchange rate policies
agreed upon austerity
Monetary and fiscal policies
24/7

28. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Obligations for the purchase or sale of goods and services at previously agreed prices
The income form individual transacations
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages

29. What is capital fight when looking at it form investor psychology?
Currency of one country can be exchanged for the currency of another country
Paying foreign currency payable before dues as a result expected currency appreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency

30. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Paying foreign currency payable before dues as a result expected currency appreciation
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;future delievery in 30/60/90/180 days

31. Greece has not defaulted because it has not been able to fully implement its...
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
True
up to date
agreed upon austerity

32. Bailout Fund of EFSF - What is this shiz nitz?
True
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Currency of one country can be exchanged for the currency of another country
Collecting & spending of money by the government

33. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Lead and lag strategies
domino effect

34. What are the important trading centers?
24/7
London - New York - Tokyo - and Singapore
Lending of funds in foreign currencies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

35. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Reserve currency
24/7
State driven recapitalization are now needed
Paying foreign currency payable before dues as a result expected currency appreciation

36. How and What is the purpose of distributing assets?
Exchange rate policies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

37. What is the characteristic of translation expose?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Obligations for the purchase or sale of goods and services at previously agreed prices
Measurement of past events
Increase currency values and protect against increases in foreign prices of goods and services

38. 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
London - New York - Tokyo - and Singapore
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

39. What is the third characteristic of transaction exposure?
Banks stability was measure at a 5% capital adequacy ratio
Borrowing of funds in foreign currency
Monetary and fiscal policies
Affected by fluctuation in foreign exchange values

40. What is the second issue with EFSF?
Vehicle currency(transaction between 2 less commonly used 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
Establish central control and attempts to forecast future exchange rates
Inflation - interest rate - and market psychology

41. Defaulting on debt has a __________ that intertwines all countries in Europe.
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
domino effect
Relative price differences and ppp

42. 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
It helps them understand the influence of exchange rates on profitability of trade investment deals
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
agreed upon austerity

43. What is the first characteristic of transaction exposure ?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Affected by fluctuation in foreign exchange values
Delay collection of foreign currency receivables if currency is exception to appreciate

44. How do you establish central control?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

45. What is the first roels of the U.S. dollar outside the U.S.?
Group of investors movement in the same direction and same time or government intervention
A common reference
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

46. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
A common reference
Impact of currency exchange rate changes on reported financial statements

47. What is the second characteristic of transaction exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Obligations for the purchase or sale of goods and services at previously agreed prices
Delay payables if currency is expected to depreciate
Collecting & spending of money by the government

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

49. What are two methods of reducing translation and transaction exposure?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Lead and lag strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

50. What is the fifth thing that determines the forex rates?
Investor psychology
Reserve currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP