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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 are the important trading centers?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
London - New York - Tokyo - and Singapore
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
Banks stability was measure at a 5% capital adequacy ratio

2. What is the first characteristic of lag strategy?
agreed upon austerity
Borrowing of funds in foreign currency
Delay collection of foreign currency receivables if currency is exception to appreciate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

3. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
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
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

4. What is the nature of the forex market?
u.s. dollar
agreed upon austerity
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
Spot rates and forward rates

5. Greece has not defaulted because it has not been able to fully implement its...
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
agreed upon austerity

6. What is externally convertible currency
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Increase currency values and protect against increases in foreign prices of goods and services
Intervention currency (peg country currency)

7. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and 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
u.s. dollar

8. What are the first two things that determine Forex rates?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Relative price differences and ppp
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

9. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
True
Banks stability was measure at a 5% capital adequacy ratio

10. What is the fourth characteristic of transaction exposure?
24/7
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Lending of funds in foreign currencies
Paying foreign currency payable before dues as a result expected currency appreciation

11. What do monetary policies do?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Spot rates - forward rates - and swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Control the amount of money in circulation - enforced by government policies - focus on growth rate

12. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Exchange rates are determined by the demand and supply for different currencies
up to date
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

13. What is the first characteristic of transaction exposure ?
Increase their exposure to banking -'s banking center
London - New York - Tokyo - and Singapore
Affected by fluctuation in foreign exchange values
domino effect

14. What are three factors that impact a country's future exchange rate movements?
Spot rates and forward rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Inflation - interest rate - and market psychology
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

15. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
True
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

16. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
The income form individual transacations
Inflation - interest rate - and market psychology
Measurement of past events

17. How do you establish central control?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Spot rates - forward rates - and swaps
Impact of currency exchange rate changes on reported financial statements

18. What are the two ways to reduce economic exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates - forward rates - and swaps

19. Most Transaction inovolve...
u.s. dollar
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Borrowing of funds in foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

20. What is the second thing that determines the Forex rates?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay payables if currency is expected to depreciate
Establish central control and attempts to forecast future exchange rates
Interest rates and money supply

21. What are the three ways of insuring against a 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
Spot rates - forward rates - and swaps
Banks stability was measure at a 5% capital adequacy ratio
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. How and What is the purpose of distributing assets?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

23. What is the nominal exchange 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
State driven recapitalization are now needed
Affected by fluctuation in foreign exchange values
Currency of one country can be exchanged for the currency of another country

24. What is the second characteristic of lag strategy?
Exchange rate policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
It helps them understand the influence of exchange rates on profitability of trade investment deals
Delay payables if currency is expected to depreciate

25. What are the three different types of foreign exchange rate risks?
Reserve currency
Monetary and fiscal policies
Transaction - translation and economic exposure
Establish central control and attempts to forecast future exchange rates

26. What is the second role 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.
Borrowing of funds in foreign currency
Intervention currency (peg country currency)
True

27. What is the characteristic of translation expose?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation 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
Spot rates and forward rates
Measurement of past events

28. What is economic exposure?
Firms future international earning power
Goods and services of one country can be exchanged for the goods and services of another country
1. protect resources efficiently 2. ensure correct mix of tactics and 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

29. What is arbitrage?
London - New York - Tokyo - and Singapore
Spot rates and forward rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
An attempt to collect currency receivables early as result of expected depreciation

30. 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Currency of one country can be exchanged for the currency of another country
24/7

31. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates - forward rates - and swaps
True
Delay collection of foreign currency receivables if currency is exception to appreciate

32. The euro faces risks fo recapitalization?
Reserve currency
Relative price differences and ppp
Banks stability was measure at a 5% capital adequacy ratio
State driven recapitalization are now needed

33. Marekts are open...
True
Lending of funds in foreign currencies
It helps them understand the influence of exchange rates on profitability of trade investment deals
24/7

34. How can transaction exposure be described?
Spot rates - forward rates - and swaps
The income form individual transacations
Goods and services of one country can be exchanged for the goods and services of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

35. When do countries use the foreign exchange market?
Group of investors movement in the same direction and same time or government intervention
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

36. No single theory can explain explain the causes the value of currencies to change. True or False?
Increase currency values and protect against increases in foreign prices of goods and services
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
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages

37. What are the two ways to quote currency?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Spot rates and forward rates
Banks stability was measure at a 5% capital adequacy ratio

38. When do countries use foreign exchange market?
An attempt to collect currency receivables early as result of expected depreciation
up to date
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

39. What are other strategies for managing forex risk?
u.s. dollar
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The income form individual transacations
Transaction - translation and economic exposure

40. What is the law of one price?
Paying foreign currency payable before dues as a result expected currency appreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

41. 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
Borrowing of funds in foreign currency
domino effect
Measurement of past events

42. What is the purpose of not concentrating assets in countries?
Transaction - translation and economic exposure
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Increase currency values and protect against increases in foreign prices of goods and services

43. What is the first roels of the U.S. dollar outside the U.S.?
Spot rates and forward rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Monetary and fiscal policies
A common reference

44. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Exchange rates are determined by the demand and supply for different 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

45. Burger economics!!! Why do we use it?
Borrowing of funds in foreign currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

46. What is the second characteristic of transaction exposure?
Forward exchange or spot exchange
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
Obligations for the purchase or sale of goods and services at previously agreed prices
State driven recapitalization are now needed

47. What are the characteristics of economic exposure?
True
Borrowing of funds in foreign currency
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

48. What is the second characteristic of lead strategy?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Paying foreign currency payable before dues as a result expected currency appreciation

49. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Investor psychology

50. What is the third role of the U.S. dollar outside the U.S.?
Currency of one country can be exchanged for the currency of another country
Firms future international earning power
Reserve 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