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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 first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Vehicle currency(transaction between 2 less commonly used currencies)
agreed upon austerity
Exchange rates are determined by the demand and supply for different currencies

2. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Firms future international earning power
True
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

3. Greece has not defaulted because it has not been able to fully implement its...
Goods and services of one country can be exchanged for the goods and services of another country
agreed upon austerity
Reserve currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

4. What is the second characteristic of lead strategy?
Impact of currency exchange rate changes on reported financial statements
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
Increase their exposure to banking -'s banking center

5. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
agreed upon austerity

6. When do countries use the foreign exchange market?
Intervention currency (peg country currency)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Lead and lag strategies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

7. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
Borrowing of funds in foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
It helps them understand the influence of exchange rates on profitability of trade investment deals

8. 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
Establish central control and attempts to forecast future exchange rates

9. 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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Currency of one country can be exchanged for the currency of another country
Forward exchange or spot exchange

10. What is the fourth roles of the U.S. dollar outside the U.S.?
u.s. dollar
up to date
Vehicle currency(transaction between 2 less commonly used currencies)
Transportation costs - trade barriers - and not trade inputs such as rents or wages

11. What are the purposes of fiscal policies?
Affected by fluctuation in foreign exchange values
Collecting & spending of money by the government
Relative price differences and ppp
u.s. dollar

12. What is the second thing that determines the Forex rates?
Exchange rates are determined by the demand and supply for different currencies
Productivity and balance payments
Interest rates and money supply
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

13. What are the first two things that determine Forex rates?
Relative price differences and ppp
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Goods and services of one country can be exchanged for the goods and services of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad

14. What is free convertible 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Reserve currency

15. Burger economics!!! Why do we use it?
up to date
True
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Inflation - interest rate - and market psychology

16. What is externally convertible currency
Reserve currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
u.s. dollar

17. When do countries use foreign exchange market?
Relative price differences and ppp
Reserve currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

18. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Lending of funds in foreign currencies
up to date

19. What are two methods of reducing translation and transaction exposure?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Lead and lag strategies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Paying foreign currency payable before dues as a result expected currency appreciation

20. What is the first characteristic of transaction exposure ?
The income form individual transacations
Affected by fluctuation in foreign exchange values
Paying foreign currency payable before dues as a result expected currency appreciation
Issue mo good loans so that profits from new business can eat away the losses form the bad

21. 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
Firms future international earning power
Affected by fluctuation in foreign exchange values
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

22. What is the second characteristic of transaction exposure?
Increase their exposure to banking -'s banking center
Obligations for the purchase or sale of goods and services at previously agreed prices
Borrowing of funds in foreign currency
Collecting & spending of money by the government

23. What causes big mac prices to vary?
True
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Goods and services of one country can be exchanged for the goods and services of another country

24. What is the third role of the U.S. dollar outside the U.S.?
Relative price differences and ppp
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
London - New York - Tokyo - and Singapore
Reserve currency

25. Bailout Fund of EFSF - What is this shiz nitz?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

26. What is hedging?

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27. What is the third thing that determines the forex rates?
Productivity and balance payments
The income form individual transacations
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Measurement of past events

28. Marekts are open...
Lending of funds in foreign currencies
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp
24/7

29. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Impact of currency exchange rate changes on reported financial statements
Monetary and fiscal policies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

30. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay payables if currency is expected to depreciate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Obligations for the purchase or sale of goods and services at previously agreed prices

31. What is the fourth thing that determines the forex rates?
Exchange rate policies
The income form individual transacations
Vehicle currency(transaction between 2 less commonly used currencies)
Lead and lag strategies

32. What are the two ways to quote currency?
Interest rates and money supply
An attempt to collect currency receivables early as result of expected depreciation
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 and forward rates

33. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
agreed upon austerity
Forward exchange or spot exchange
Transaction - translation and economic exposure

34. What are the characteristics of economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Productivity and balance payments
Collecting & spending of money by the government
Transaction - translation and economic exposure

35. How and What is the purpose of distributing assets?
True
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

36. How can transaction exposure be described?
Delay collection of foreign currency receivables if currency is exception to appreciate
24/7
The income form individual transacations
domino effect

37. What is capital fight when looking at it form investor psychology?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

38. What is a forward rate?
u.s. dollar
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

39. What is the second issue with EFSF?
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
Lead and lag strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

40. Most Transaction inovolve...
Monetary and fiscal policies
True
u.s. dollar
agreed upon austerity

41. What is the characteristic of translation expose?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The income form individual transacations
Measurement of past events
Firms future international earning power

42. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Lead and lag strategies
Affected by fluctuation in foreign exchange values
Investor psychology

43. How do you insure or hedge against a Forex risk?
24/7
Forward exchange or spot exchange
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates - forward rates - and swaps

44. What is the purpose of not concentrating assets in countries?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign 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
Increase currency values and protect against increases in foreign prices of goods and services
London - New York - Tokyo - and Singapore

45. What is the bandwagon effect when looking at form investor psychology ?
Collecting & spending of money by the government
Currency of one country can be exchanged for the currency of another country
Group of investors movement in the same direction and same time or government intervention
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

46. What are the types of Exchange Rate Fluctuations?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
State driven recapitalization are now needed
Paying foreign currency payable before dues as a result expected currency appreciation
Monetary and fiscal policies

47. What is the real exchange rate?
Inflation - interest rate - and market psychology
Spot rates and forward rates
Banks stability was measure at a 5% capital adequacy ratio
Goods and services of one country can be exchanged for the goods and services of another country

48. What is economic exposure?
Firms future international earning power
Delay collection of foreign currency receivables if currency is exception to appreciate
Lending of funds 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

49. What implications does understanding foreign exchange rates have on managers?
Impact of currency exchange rate changes on reported financial statements
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
Lead and lag strategies

50. 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
agreed upon austerity
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps