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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. Greece has not defaulted because it has not been able to fully implement its...
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
agreed upon austerity
The income form individual transacations
An attempt to collect currency receivables early as result of expected depreciation

2. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Obligations for the purchase or sale of goods and services at previously agreed prices
State driven recapitalization are now needed
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Exchange rates are determined by the demand and supply for different currencies

3. Burger economics!!! Why do we use it?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Vehicle currency(transaction between 2 less commonly used currencies)
domino effect
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

4. What are the purposes of fiscal policies?
Collecting & spending of money by the government
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
State driven recapitalization are now needed
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

5. How do you establish central control?
Reserve currency
Exchange rate policies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Forward exchange or spot exchange

6. What is externally convertible currency
Lead and lag strategies
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

7. What is the law of one price?
up to date
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Inflation - interest rate - and market psychology

8. What are the three ways of insuring against a Forex risk?
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
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
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

9. What are some characteristics of swaps?
1. distribute productive assets 2. ensure assets are not concentrated in countries
24/7
Spot rates - forward rates - and swaps
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

10. What is the third role of the U.S. dollar outside the U.S.?
Impact of currency exchange rate changes on reported financial statements
Goods and services of one country can be exchanged for the goods and services of another country
Interest rates and money supply
Reserve currency

11. How do you insure or hedge against a Forex risk?
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply
Borrowing of funds in foreign currency
Forward exchange or spot exchange

12. What is the second issue with EFSF?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
24/7
Spot rates and forward rates

13. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
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
London - New York - Tokyo - and Singapore
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

14. What is the characteristic of translation expose?
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
Banks stability was measure at a 5% capital adequacy ratio
Measurement of past events

15. What is the fifth thing that determines the forex rates?
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
Investor psychology
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

16. What is capital fight when looking at it form investor psychology?
Borrowing of funds in 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.
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services

17. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Lead and lag strategies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rates are determined by the demand and supply for different currencies

18. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
domino effect
True
Increase their exposure to banking -'s banking center

19. What are the three different types of foreign exchange rate risks?
Spot rates and forward rates
Delay collection of foreign currency receivables if currency is exception to appreciate
Transaction - translation and economic exposure
True

20. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
u.s. dollar
Productivity and balance payments

21. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Inflation - interest rate - and market psychology
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
up to date

22. What is the real exchange rate?
An attempt to collect currency receivables early as result of expected depreciation
Exchange rates are determined by the demand and supply for different currencies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Goods and services of one country can be exchanged for the goods and services of another country

23. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rates are determined by the demand and supply for different currencies

24. What are other strategies for managing forex risk?
Delay payables if currency is expected to depreciate
Establish central control and attempts to forecast future exchange rates
Investor psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

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

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26. What are the two ways to quote currency?
Lending of funds in foreign currencies
Spot rates and forward 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
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

27. What is the purpose of not concentrating assets in countries?
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
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

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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
True
24/7

29. What causes big mac prices to vary?
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

30. What is a forward rate?
agreed upon austerity
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rates are determined by the demand and supply for different currencies

31. When do countries use the foreign exchange market?
Productivity and balance payments
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Increase currency values and protect against increases in foreign prices of goods and services
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

32. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country
agreed upon austerity

33. What is the second characteristic of lead strategy?
Increase their exposure to banking -'s banking center
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Paying foreign currency payable before dues as a result expected currency appreciation

34. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
An attempt to collect currency receivables early as result of expected depreciation
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
Intervention currency (peg country currency)

35. Bailout Fund of EFSF - What is this shiz nitz?
Inflation - interest rate - and market psychology
Control the amount of money in circulation - enforced by government policies - focus on growth rate
up to date
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

36. What is hedging?

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37. How and What is the purpose of distributing assets?
Currency of one country can be exchanged for the currency of another country
Reserve currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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

38. What is the first characteristic of lead strategy?
Inflation - interest rate - and market psychology
An attempt to collect currency receivables early as result of expected depreciation
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

39. What is the first characteristic of lag strategy?
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Delay collection of foreign currency receivables if currency is exception to appreciate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

40. What is the third 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
Borrowing of funds in foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
Goods and services of one country can be exchanged for the goods and services of another country

41. What is the fourth characteristic of transaction exposure?
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
Lending of funds in foreign currencies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

42. What are the characteristics of economic exposure?
Vehicle currency(transaction between 2 less commonly used currencies)
Paying foreign currency payable before dues as a result expected currency appreciation
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

43. Most Transaction inovolve...
Interest rates and money supply
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
u.s. dollar

44. Marekts are open...
Establish central control and attempts to forecast future exchange rates
Firms future international earning power
24/7
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

45. What are the first two things that determine Forex 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
Monetary and fiscal policies
Relative price differences and ppp
Lead and lag strategies

46. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
London - New York - Tokyo - and Singapore
Delay payables if currency is expected to depreciate
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

47. What are the two ways to reduce economic exposure?
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
Transaction - translation and economic exposure
1. distribute productive assets 2. ensure assets are not concentrated in countries

48. What is the second characteristic of transaction exposure?
Spot rates - forward rates - and swaps
Delay collection of foreign currency receivables if currency is exception to appreciate
Obligations for the purchase or sale of goods and services at previously agreed prices
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

49. What is the nature of the forex market?
A common reference
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
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
London - New York - Tokyo - and Singapore

50. What is the fourth thing that determines the forex rates?
Group of investors movement in the same direction and same time or government intervention
Measurement of past events
Exchange rate policies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency