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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 a currency swamp?
The income form individual transacations
Spot rates and forward rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

2. What implications does understanding foreign exchange rates have on managers?
Delay collection of foreign currency receivables if currency is exception to appreciate
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

3. What is free convertible currency?
Lead and lag strategies
Investor psychology
Forward exchange or spot exchange
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

4. No single theory can explain explain the causes the value of currencies to change. True or False?
True
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
Lending of funds in foreign currencies

5. What is the second role of the U.S. dollar outside the U.S. ?
Lead and lag strategies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Intervention currency (peg country currency)
An attempt to collect currency receivables early as result of expected depreciation

6. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Borrowing of funds in foreign currency
Reserve currency
A common reference

7. When do countries use the foreign exchange market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
agreed upon austerity

8. What is externally convertible currency
Monetary and fiscal policies
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

9. What is hedging?

10. What is the first characteristic of lag strategy?
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates and forward rates
Delay collection of foreign currency receivables if currency is exception to appreciate
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

11. What are two methods of reducing translation and transaction exposure?
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Vehicle currency(transaction between 2 less commonly used currencies)
Lead and lag strategies

12. What is the fourth characteristic of transaction exposure?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lending of funds in foreign currencies
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. distribute productive assets 2. ensure assets are not concentrated in countries

13. What is the fourth thing that determines the forex rates?
Borrowing of funds in foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rate policies
Currency of one country can be exchanged for the currency of another country

14. What are the three ways of insuring against a Forex risk?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates - forward rates - and swaps
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Inflation - interest rate - and market psychology

15. How do you insure or hedge against a Forex risk?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Forward exchange or spot exchange
24/7
It helps them understand the influence of exchange rates on profitability of trade investment deals

16. 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
Group of investors movement in the same direction and same time or government intervention
Spot rates - forward rates - and swaps
Delay collection of foreign currency receivables if currency is exception to appreciate

17. What are the important trading centers?
London - New York - Tokyo - and Singapore
Spot rates and forward rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Measurement of past events

18. What is the first characteristic of transaction exposure ?
Spot rates - forward rates - and swaps
Affected by fluctuation in foreign exchange values
Transaction - translation and economic exposure
domino effect

19. According to economic theories of exchage rate determination?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
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

20. What is a forward rate?
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
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

21. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Interest rates and money supply
An attempt to collect currency receivables early as result of expected depreciation
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

22. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

23. What is the third thing that determines the forex rates?
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Productivity and balance payments
Obligations for the purchase or sale of goods and services at previously agreed prices

24. What are the three different types of foreign exchange rate risks?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Obligations for the purchase or sale of goods and services at previously agreed prices
Transaction - translation and economic exposure
Borrowing of funds in foreign currency

25. Greece has not defaulted because it has not been able to fully implement its...
Currency of one country can be exchanged for the currency of another country
agreed upon austerity
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

26. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
A common reference
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

27. When do countries use foreign exchange market?
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
London - New York - Tokyo - and Singapore
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

28. 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
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

29. What is a spot rate?
Spot rates - forward rates - and swaps
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Delay payables if currency is expected to depreciate
Reserve currency

30. What holds true to Purchase Power Parity Theory?
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
Exchange rates are determined by the demand and supply for different 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

31. What is the nature of the forex market?
Interest rates and money supply
Inflation - interest rate - and market psychology
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

32. What is capital fight when looking at it form investor psychology?
London - New York - Tokyo - and Singapore
Currency of one country can be exchanged for the currency of another country
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lead and lag strategies

33. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Affected by fluctuation in foreign exchange values
True
u.s. dollar

34. What is the first issue with EFSF?
London - New York - Tokyo - and Singapore
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
An attempt to collect currency receivables early as result of expected depreciation
Issue mo good loans so that profits from new business can eat away the losses form the bad

35. What is economic exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Firms future international earning power
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)

36. Marekts are open...
Collecting & spending of money by the government
Spot rates - forward rates - and swaps
Currency of one country can be exchanged for the currency of another country
24/7

37. Defaulting on debt has a __________ that intertwines all countries in Europe.
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
domino effect
Investor psychology
The income form individual transacations

38. What are the two ways to quote currency?
24/7
Exchange rate policies
Spot rates and forward rates
Measurement of past events

39. What is the third role of the U.S. dollar outside the U.S.?
Borrowing of funds in foreign currency
Reserve currency
domino effect
Transaction - translation and economic exposure

40. What is non convertible currency?
Transaction - translation and economic exposure
Delay payables if currency is expected to depreciate
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

41. What are the types of Exchange Rate Fluctuations?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. distribute productive assets 2. ensure assets are not concentrated in countries
Monetary and fiscal policies
Goods and services of one country can be exchanged for the goods and services of another country

42. What is the bandwagon effect when looking at form investor psychology ?
A common reference
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Measurement of past events
Group of investors movement in the same direction and same time or government intervention

43. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Interest rates and money supply
Measurement of past events
Forward exchange or spot exchange

44. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Delay payables if currency is expected to depreciate
An attempt to collect currency receivables early as result of expected depreciation
Issue mo good loans so that profits from new business can eat away the losses form the bad

45. What is the first roels of the U.S. dollar outside the U.S.?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Productivity and balance payments
Exchange rates are determined by the demand and supply for different currencies
A common reference

46. 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.
Interest rates and money supply
Control the amount of money in circulation - enforced by government policies - focus on growth rate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

47. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Delay collection of foreign currency receivables if currency is exception to appreciate
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments

48. What are the characteristics of economic exposure?
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
State driven recapitalization are now needed
Intervention currency (peg country currency)

49. What are some strategies for managing forex risk?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
agreed upon austerity
Establish central control and attempts to forecast future exchange rates
London - New York - Tokyo - and Singapore

50. What is the purpose of not concentrating assets in countries?
Relative price differences and ppp
up to date
Increase currency values and protect against increases in foreign prices of goods and services
Obligations for the purchase or sale of goods and services at previously agreed prices