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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. 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
The income form individual transacations
Reserve currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

2. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
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
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
Currency of one country can be exchanged for the currency of another country

3. How do you insure or hedge against a Forex risk?
Large number of individuals and cos exchange of domestic currencies for a foreign 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Forward exchange or spot exchange

4. What is arbitrage?
The income form individual transacations
Delay payables if currency is expected to depreciate
A common reference
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

5. What is hedging?

6. What implications does understanding foreign exchange rates have on managers?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
It helps them understand the influence of exchange rates on profitability of trade investment deals
Firms future international earning power
The income form individual transacations

7. What is the second thing that determines the Forex rates?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply

8. What are some factors that influence exchange rates?
Group of investors movement in the same direction and same time or government intervention
24/7
Impact of currency exchange rate changes on reported financial statements
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

9. What are the two ways to reduce economic exposure?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Group of investors movement in the same direction and same time or government intervention

10. Burger economics!!! Why do we use it?
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
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates and forward rates

11. What are the two ways to quote currency?
Reserve 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
Spot rates and forward 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

12. What are the first two things that determine Forex rates?
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp
Collecting & spending of money by the government
Firms future international earning power

13. What is the second characteristic of transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Currency of one country can be exchanged for the currency of another country
Goods and services of one country can be exchanged for the goods and services of another country
Obligations for the purchase or sale of goods and services at previously agreed prices

14. How can transaction exposure be described?
The income form individual transacations
Exchange rate policies
Productivity and balance payments
True

15. What is externally convertible currency
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Impact of currency exchange rate changes on reported financial statements
Increase currency values and protect against increases in foreign prices of goods and services

16. How can translation exposure be described?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Monetary and fiscal policies
Impact of currency exchange rate changes on reported financial statements

17. What is the second role of the U.S. dollar outside the U.S. ?
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
Spot rates and forward rates
Intervention currency (peg country currency)
Productivity and balance payments

18. What are the characteristics of economic exposure?
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 changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Relative price differences and ppp

19. What is the second characteristic of lag strategy?
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
An attempt to collect currency receivables early as result of expected depreciation
u.s. dollar

20. Greece has not defaulted because it has not been able to fully implement its...
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
Vehicle currency(transaction between 2 less commonly used currencies)
agreed upon austerity
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

21. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Transportation costs - trade barriers - and not trade inputs such as rents or wages

22. What do monetary policies do?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
u.s. dollar
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

23. No single theory can explain explain the causes the value of currencies to change. True or False?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

24. When do countries use the foreign exchange market?
Monetary and fiscal policies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
It helps them understand the influence of exchange rates on profitability of trade investment deals

25. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Establish central control and attempts to forecast future exchange rates
Collecting & spending of money by the government
Lending of funds in foreign currencies

26. What are the purposes of fiscal policies?
Affected by fluctuation in foreign exchange values
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
Collecting & spending of money by the government

27. What are two methods of reducing translation and transaction exposure?
Inflation - interest rate - and market psychology
Paying foreign currency payable before dues as a result expected currency appreciation
Lead and lag strategies
Issue mo good loans so that profits from new business can eat away the losses form the bad

28. What is economic exposure?
Productivity and balance payments
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
Firms future international earning power

29. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

30. When do countries use foreign exchange market?
Establish central control and attempts to forecast future exchange rates
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
up to date
The income form individual transacations

31. What is non convertible currency?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
agreed upon austerity
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

32. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Firms future international earning power
Establish central control and attempts to forecast future exchange rates
Borrowing of funds in foreign currency

33. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Paying foreign currency payable before dues as a result expected currency appreciation

34. What is the fourth thing that determines the forex rates?
Exchange rate policies
domino effect
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

35. How do you establish central control?
Vehicle currency(transaction between 2 less commonly used currencies)
Obligations for the purchase or sale of goods and services at previously agreed prices
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Transaction - translation and economic exposure

36. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Obligations for the purchase or sale of goods and services at previously agreed prices
State driven recapitalization are now needed

37. It is important to stay __________ with your current events
Spot rates and forward rates
Establish central control and attempts to forecast future exchange rates
Forward exchange or spot exchange
up to date

38. What is the first issue with EFSF?
24/7
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Intervention currency (peg country currency)

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

40. What is the fourth characteristic of transaction exposure?
Delay payables if currency is expected to depreciate
Firms future international earning power
Lending of funds in foreign currencies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

41. According to economic theories of exchage rate determination?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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
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
Exchange rates are determined by the demand and supply for different currencies

42. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
True
Group of investors movement in the same direction and same time or government intervention
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. What are the three ways of insuring against a Forex risk?
Lending of funds in foreign currencies
up to date
True
Spot rates - forward rates - and swaps

44. 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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Monetary and fiscal policies
Paying foreign currency payable before dues as a result expected currency appreciation

45. What is a currency swamp?
Banks stability was measure at a 5% capital adequacy ratio
Group of investors movement in the same direction and same time or government intervention
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Firms future international earning power

46. What is the first characteristic of transaction exposure ?
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 fluctuation in foreign exchange values
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

47. What are other strategies for managing forex risk?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase their exposure to banking -'s banking center
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

48. What is the fifth thing that determines the forex rates?
Delay collection of foreign currency receivables if currency is exception to appreciate
Investor psychology
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

49. What is the first roels of the U.S. dollar outside the U.S.?
Inflation - interest rate - and market psychology
A common reference
Increase their exposure to banking -'s banking center
Establish central control and attempts to forecast future exchange rates

50. What holds true to Purchase Power Parity Theory?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Forward exchange or spot exchange
Vehicle currency(transaction between 2 less commonly used currencies)