Test your basic knowledge |

Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

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 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Inflation - interest rate - and market psychology
A common reference

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

3. What is the second issue with EFSF?
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
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

4. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Exchange rate policies
Delay payables if currency is expected to depreciate

5. What is a currency swamp?
True
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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)

6. What is the fourth characteristic of transaction exposure?
Reserve currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
Lending of funds in foreign currencies

7. Most Transaction inovolve...
u.s. dollar
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Increase currency values and protect against increases in foreign prices of goods and services
Establish central control and attempts to forecast future exchange rates

8. The euro faces risks fo recapitalization?
Group of investors movement in the same direction and same time or government intervention
Banks stability was measure at a 5% capital adequacy ratio
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Delay collection of foreign currency receivables if currency is exception to appreciate

9. 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
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
Reserve currency

10. What is a spot rate?
Intervention currency (peg country currency)
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Exchange rate policies
Interest rates and money supply

11. What is a forward rate?
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transportation costs - trade barriers - and not trade inputs such as rents or wages

12. What is the second role of the U.S. dollar outside the U.S. ?
u.s. dollar
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

13. What is the second thing that determines the Forex rates?
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply
Goods and services of one country can be exchanged for the goods and services of another country
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

14. What is the second characteristic of lead strategy?
Relative price differences and ppp
Paying foreign currency payable before dues as a result expected currency appreciation
State driven recapitalization are now needed
True

15. Marekts are open...
24/7
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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

16. What is capital fight when looking at it form investor psychology?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries

17. What is non convertible currency?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
domino effect
Borrowing of funds in foreign currency

18. What is hedging?

19. What is the third thing that determines the forex rates?
Lending of funds in foreign currencies
Increase currency values and protect against increases in foreign prices of goods and services
Firms future international earning power
Productivity and balance payments

20. What is the first characteristic of transaction exposure ?
Lending of funds in foreign currencies
Forward exchange or spot exchange
Affected by fluctuation in foreign exchange values
A common reference

21. What are two methods of reducing translation and transaction exposure?
Collecting & spending of money by the government
Lead and lag strategies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

22. 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
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

23. What are the first two things that determine Forex rates?
Relative price differences and 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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

24. What are the two ways to reduce economic exposure?
Collecting & spending of money by the government
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True
1. distribute productive assets 2. ensure assets are not concentrated in countries

25. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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)
Spot rates and forward rates

26. What are the three different types of foreign exchange rate risks?
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
Transaction - translation and economic exposure
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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 are the three ways of insuring against a Forex risk?
Increase their exposure to banking -'s banking center
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Spot rates - forward rates - and swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

28. What are some factors that influence exchange rates?
Collecting & spending of money by the government
u.s. dollar
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

29. Burger economics!!! Why do we use it?
Collecting & spending of money by the government
Interest rates and money supply
A common reference
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

30. What do monetary policies do?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Monetary and fiscal policies
London - New York - Tokyo - and Singapore
Control the amount of money in circulation - enforced by government policies - focus on growth rate

31. 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
Interest rates and money supply
agreed upon austerity

32. What is the third characteristic of transaction exposure?
Intervention currency (peg country currency)
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
Borrowing of funds in foreign currency

33. Greece has not defaulted because it has not been able to fully implement its...
Collecting & spending of money by the government
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
24/7
agreed upon austerity

34. How can translation exposure be described?
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Impact of currency exchange rate changes on reported financial statements

35. When do countries use the foreign exchange market?
Paying foreign currency payable before dues as a result expected currency appreciation
Exchange rate policies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

36. What are the purposes of fiscal policies?
The income form individual transacations
Collecting & spending of money by the government
24/7
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

37. When do countries use foreign exchange market?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
agreed upon austerity

38. What is the third role of the U.S. dollar outside the U.S.?
Affected by fluctuation in foreign exchange values
A common reference
Reserve currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

39. What is economic exposure?
Firms future international earning power
Impact of currency exchange rate changes on reported financial statements
Intervention currency (peg country currency)
Transaction - translation and economic exposure

40. What holds true to Purchase Power Parity Theory?
Affected by fluctuation in foreign exchange values
u.s. dollar
Transaction - translation and economic exposure
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

41. What is the real exchange rate?
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
Transaction - translation and economic exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

42. What are the types of Exchange Rate Fluctuations?
Spot rates - forward rates - and swaps
Monetary and fiscal policies
Currency of one country can be exchanged for the currency of another country
u.s. dollar

43. How do you insure or hedge against a Forex risk?
Collecting & spending of money by the government
The income form individual transacations
Forward exchange or spot exchange
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

44. What is the fourth thing that determines the forex rates?
Exchange rate policies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
Relative price differences and ppp

45. What is the first roels of the U.S. dollar outside the U.S.?
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
Inflation - interest rate - and market psychology
Affected by fluctuation in foreign exchange values

46. What are the two ways to quote currency?
Intervention currency (peg country currency)
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
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

47. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Paying foreign currency payable before dues as a result expected currency appreciation

48. What implications does understanding foreign exchange rates have on managers?
Relative price differences and ppp
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
Paying foreign currency payable before dues as a result expected currency appreciation

49. What are some strategies for managing forex risk?
True
Interest rates and money supply
Establish central control and attempts to forecast future exchange rates
up to date

50. What is the second characteristic of transaction exposure?
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
Affected by fluctuation in foreign exchange values
Control the amount of money in circulation - enforced by government policies - focus on growth rate