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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. It is important to stay __________ with your current events
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Collecting & spending of money by the government
up to date
Borrowing of funds in foreign currency

2. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Borrowing of funds in foreign currency
True
Lead and lag strategies

3. What are the two ways to quote currency?
Investor psychology
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Spot rates and forward rates
Monetary and fiscal policies

4. What is economic exposure?
Banks stability was measure at a 5% capital adequacy ratio
Large number of individuals and cos exchange of domestic currencies for a foreign currency
State driven recapitalization are now needed
Firms future international earning power

5. What is the bandwagon effect when looking at form investor psychology ?
Firms future international earning power
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
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

6. What are other strategies for managing forex risk?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Lead and lag strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

7. What is the first characteristic of lead strategy?
Transaction - translation and economic exposure
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events

8. What is the second characteristic of lag strategy?
u.s. dollar
Monetary and fiscal policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay payables if currency is expected to depreciate

9. What are the first two things that determine Forex rates?
Increase currency values and protect against increases in foreign prices of goods and services
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Relative price differences and ppp
Firms future international earning power

10. What holds true to Purchase Power Parity Theory?
Lead and lag strategies
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
An attempt to collect currency receivables early as result of expected depreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

11. 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
Reserve currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Transaction - translation and economic exposure

12. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Banks stability was measure at a 5% capital adequacy ratio
London - New York - Tokyo - and Singapore
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

13. What is the real exchange rate?
Intervention currency (peg country currency)
Goods and services of one country can be exchanged for the goods and services of another country
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries

14. What is the characteristic of translation expose?
London - New York - Tokyo - and Singapore
Measurement of past events
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
Spot rates and forward rates

15. How and What is the purpose of distributing assets?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

16. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Firms future international earning power
Impact of currency exchange rate changes on reported financial statements
Affected by fluctuation in foreign exchange values

17. What is the third characteristic of transaction exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Borrowing of funds in foreign currency
Transaction - translation and economic exposure
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

18. What is the fourth thing that determines the forex rates?
Exchange rate policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

19. Greece has not defaulted because it has not been able to fully implement its...
London - New York - Tokyo - and Singapore
agreed upon austerity
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Intervention currency (peg country currency)

20. What is arbitrage?
Reserve currency
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

21. What is the third role of the U.S. dollar outside the U.S.?
A common reference
Monetary and fiscal policies
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
Reserve currency

22. What are some characteristics of swaps?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Interest rates and money supply
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
True

23. What is the nature of the forex market?
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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

24. What are the types of Exchange Rate Fluctuations?
Goods and services of one country can be exchanged for the goods and services of another country
Forward exchange or spot exchange
Monetary and fiscal policies
Vehicle currency(transaction between 2 less commonly used currencies)

25. What is the purpose of not concentrating assets in countries?
True
Increase currency values and protect against increases in foreign prices of goods and services
True
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

26. How can transaction exposure be described?
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
The income form individual transacations
Group of investors movement in the same direction and same time or government intervention

27. How can translation exposure be described?
True
Inflation - interest rate - and market psychology
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
Impact of currency exchange rate changes on reported financial statements

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

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29. What is the second role of the U.S. dollar outside the U.S. ?
State driven recapitalization are now needed
Impact of currency exchange rate changes on reported financial statements
up to date
Intervention currency (peg country currency)

30. What is the second thing that determines the Forex rates?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Interest rates and money supply
agreed upon austerity
Delay payables if currency is expected to depreciate

31. What is the law of one price?
Spot rates - forward rates - and swaps
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
True

32. Bailout Fund of EFSF - What is this shiz nitz?
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

33. Marekts are open...
24/7
Forward exchange or spot exchange
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

34. What is the fourth roles of the U.S. dollar outside the U.S.?
Goods and services of one country can be exchanged for the goods and services of another country
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Vehicle currency(transaction between 2 less commonly used currencies)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

35. 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
London - New York - Tokyo - and Singapore
Investor psychology
Borrowing of funds in foreign currency

36. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

37. What is a currency swamp?
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Impact of currency exchange rate changes on reported financial statements
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

38. According to economic theories of exchage rate determination?
Increase their exposure to banking -'s banking center
Forward exchange or spot exchange
State driven recapitalization are now needed
Exchange rates are determined by the demand and supply for different currencies

39. What is the second characteristic of lead strategy?
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
agreed upon austerity
Paying foreign currency payable before dues as a result expected currency appreciation
1. distribute productive assets 2. ensure assets are not concentrated in countries

40. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
A common reference
Forward exchange or spot exchange
Investor psychology

41. What is the third thing that determines the forex rates?
Spot rates - forward rates - and swaps
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
Productivity and balance payments
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

42. 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

43. What are the important trading centers?
A common reference
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
London - New York - Tokyo - and Singapore
Delay collection of foreign currency receivables if currency is exception to appreciate

44. What is non convertible currency?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Measurement of past events
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power

45. What are the three ways of insuring against a Forex risk?
Forward exchange or spot exchange
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
Spot rates - forward rates - and swaps

46. What is hedging?

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47. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Lead and lag strategies
Exchange rates are determined by the demand and supply for different currencies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

48. What is the nominal exchange rate?
Banks stability was measure at a 5% capital adequacy ratio
Currency of one country can be exchanged for the currency of another country
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Productivity and balance payments

49. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
agreed upon austerity
Vehicle currency(transaction between 2 less commonly used currencies)
Lead and lag strategies

50. What are the characteristics of economic exposure?
24/7
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Interest rates and money supply
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs