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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 economic exposure?
Vehicle currency(transaction between 2 less commonly used currencies)
Group of investors movement in the same direction and same time or government intervention
Collecting & spending of money by the government
Firms future international earning power

2. What is hedging?

3. What is the characteristic of translation expose?
Group of investors movement in the same direction and same time or government intervention
Investor psychology
Measurement of past events
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

4. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
Paying foreign currency payable before dues as a result expected currency appreciation
Obligations for the purchase or sale of goods and services at previously agreed prices

5. How can translation exposure be described?
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Impact of currency exchange rate changes on reported financial statements
Increase currency values and protect against increases in foreign prices of goods and services

6. What is the fourth roles of the U.S. dollar outside the U.S.?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign 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
Vehicle currency(transaction between 2 less commonly used currencies)
Delay collection of foreign currency receivables if currency is exception to appreciate

7. What are the first two things that determine Forex 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
Lending of funds in foreign currencies
Borrowing of funds in foreign currency
Relative price differences and ppp

8. What is the fourth characteristic of transaction exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Reserve currency
Relative price differences and ppp
Lending of funds in foreign currencies

9. Most Transaction inovolve...
Spot rates - forward rates - and swaps
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
u.s. dollar
Vehicle currency(transaction between 2 less commonly used currencies)

10. What is the second role of the U.S. dollar outside the U.S. ?
Currency of one country can be exchanged for the currency of another country
Banks stability was measure at a 5% capital adequacy ratio
Intervention currency (peg country 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

11. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transaction - translation and economic exposure

12. What is the purpose of not concentrating assets in countries?
True
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates - forward rates - and swaps
State driven recapitalization are now needed

13. What is the third thing that determines the forex rates?
Obligations for the purchase or sale of goods and services at previously agreed prices
Delay payables if currency is expected to depreciate
Exchange rates are determined by the demand and supply for different currencies
Productivity and balance payments

14. What is the first characteristic of lag strategy?
Transaction - translation and economic exposure
agreed upon austerity
Delay collection of foreign currency receivables if currency is exception to appreciate
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

15. What is the fifth thing that determines the forex rates?
State driven recapitalization are now needed
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Investor psychology
Banks stability was measure at a 5% capital adequacy ratio

16. What are three factors that impact a country's future exchange rate movements?
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
Reserve currency
Inflation - interest rate - and market psychology

17. 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
Lead and lag strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Interest rates and money supply

18. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
Borrowing of funds in foreign currency

19. What is capital fight when looking at it form investor psychology?
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.
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

20. What are the three ways of insuring against a Forex risk?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
Reserve currency
Spot rates - forward rates - and swaps

21. What is the third role of the U.S. dollar outside the U.S.?
Exchange rates are determined by the demand and supply for different currencies
Interest rates and money supply
Reserve currency
Establish central control and attempts to forecast future exchange rates

22. What is the first characteristic of transaction exposure ?
Measurement of past events
Transaction - translation and economic exposure
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

23. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Increase currency values and protect against increases in foreign prices of goods and services
The income form individual transacations

24. The euro faces risks fo recapitalization?
Monetary and fiscal policies
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
Forward exchange or spot exchange

25. When do countries use the foreign exchange market?
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.
Exchange rate policies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

26. What is the law of one price?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
True
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

27. What is a currency swamp?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

28. What is the real exchange rate?
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
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

29. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Borrowing of funds in foreign currency
True
Currency of one country can be exchanged for the currency of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

30. What is the nominal exchange rate?
Forward exchange or spot exchange
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country
A common reference

31. What are the three different types of foreign exchange rate risks?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

32. What is a spot rate?
Investor psychology
Impact of currency exchange rate changes on reported financial statements
An attempt to collect currency receivables early as result of expected depreciation
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

33. What are the purposes of fiscal policies?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Collecting & spending of money by the government
Reserve currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

34. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

35. Defaulting on debt has a __________ that intertwines all countries in Europe.
24/7
Impact of currency exchange rate changes on reported financial statements
domino effect
It helps them understand the influence of exchange rates on profitability of trade investment deals

36. No single theory can explain explain the causes the value of currencies to change. True or False?
Reserve currency
Lending of funds in foreign currencies
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

37. What is the bandwagon effect when looking at form investor psychology ?
Lending of funds in foreign currencies
Group of investors movement in the same direction and same time or government intervention
domino effect
Currency of one country can be exchanged for the currency of another country

38. How can transaction exposure be described?
Relative price differences and ppp
Transaction - translation and economic exposure
The income form individual transacations
Measurement of past events

39. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
State driven recapitalization are now needed
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
domino effect

40. What is arbitrage?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
domino effect
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

41. What is the nature of the forex market?
Vehicle currency(transaction between 2 less commonly used currencies)
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
Delay collection of foreign currency receivables if currency is exception to appreciate
Investor psychology

42. Bailout Fund of EFSF - What is this shiz nitz?
The income form individual transacations
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

43. How and What is the purpose of distributing assets?
Investor psychology
Exchange rate policies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Obligations for the purchase or sale of goods and services at previously agreed prices

44. When do countries use foreign exchange market?
Affected by fluctuation in foreign exchange values
u.s. dollar
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. 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

45. What are the two ways to quote currency?
Currency of one country can be exchanged for the currency of another country
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
True

46. What is the second thing that determines the Forex rates?
Interest rates and money supply
Goods and services of one country can be exchanged for the goods and services of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no 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

47. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Lead and lag strategies
Delay collection of foreign currency receivables if currency is exception to appreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

48. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

49. What holds true to Purchase Power Parity Theory?
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Group of investors movement in the same direction and same time or government intervention
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

50. What is the first issue with EFSF?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Issue mo good loans so that profits from new business can eat away the losses form the bad