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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 are some factors that influence exchange rates?
True
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
State driven recapitalization are now needed

2. What is a currency swamp?
Relative price differences and ppp
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Issue mo good loans so that profits from new business can eat away the losses form the bad
True

3. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Transportation costs - trade barriers - and not trade inputs such as rents or wages
It helps them understand the influence of exchange rates on profitability of trade investment deals
State driven recapitalization are now needed
Vehicle currency(transaction between 2 less commonly used currencies)

4. What is the characteristic of translation expose?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Banks stability was measure at a 5% capital adequacy ratio
True
Measurement of past events

5. What are the three different types of foreign exchange rate risks?
Measurement of past events
Transaction - translation and economic exposure
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
Impact of currency exchange rate changes on reported financial statements

6. What is non convertible 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

7. What is the fifth thing that determines the forex rates?
Reserve currency
Productivity and balance payments
Investor psychology
domino effect

8. No single theory can explain explain the causes the value of currencies to change. True or False?
Investor psychology
Establish central control and attempts to forecast future exchange rates
Measurement of past events
True

9. What are two methods of reducing translation and transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Lead and lag strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

10. What are three factors that impact a country's future exchange rate movements?
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
Lending of funds in foreign currencies
Inflation - interest rate - and market psychology
Delay payables if currency is expected to depreciate

11. How can translation exposure be described?
Interest rates and money supply
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Impact of currency exchange rate changes on reported financial statements
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

12. What are some strategies for managing forex risk?
London - New York - Tokyo - and Singapore
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Establish central control and attempts to forecast future exchange rates
Delay collection of foreign currency receivables if currency is exception to appreciate

13. What is the nominal exchange rate?
Paying foreign currency payable before dues as a result expected currency appreciation
Currency of one country can be exchanged for the currency of another country
Lead and lag strategies
An attempt to collect currency receivables early as result of expected depreciation

14. What are the characteristics of economic exposure?
Exchange rates are determined by the demand and supply for different currencies
up to date
Delay payables if currency is expected to depreciate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

15. What causes big mac prices to vary?
Impact of currency exchange rate changes on reported financial statements
Inflation - interest rate - and market psychology
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Obligations for the purchase or sale of goods and services at previously agreed prices

16. What is the second characteristic of transaction exposure?
up to date
Establish central control and attempts to forecast future exchange rates
Obligations for the purchase or sale of goods and services at previously agreed prices
Reserve currency

17. What is the purpose of not concentrating assets in countries?
Delay collection of foreign currency receivables if currency is exception to appreciate
u.s. dollar
Transaction - translation and economic exposure
Increase currency values and protect against increases in foreign prices of goods and services

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

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19. Bailout Fund of EFSF - What is this shiz nitz?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date
Delay collection of foreign currency receivables if currency is exception to appreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

20. The euro faces risks fo recapitalization?
Interest rates and money supply
Banks stability was measure at a 5% capital adequacy ratio
It helps them understand the influence of exchange rates on profitability of trade investment deals
True

21. What are the two ways to quote currency?
Exchange rate policies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
24/7
Spot rates and forward rates

22. 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
Productivity and balance payments
True
Inflation - interest rate - and market psychology

23. What are the three ways of insuring against a Forex risk?
Exchange rate policies
Spot rates - forward rates - and swaps
Intervention currency (peg country currency)
Transportation costs - trade barriers - and not trade inputs such as rents or wages

24. What are the important trading centers?
London - New York - Tokyo - and Singapore
24/7
Exchange rate policies
Paying foreign currency payable before dues as a result expected currency appreciation

25. How do you insure or hedge against a Forex 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
Forward exchange or spot exchange
Firms future international earning power
Inflation - interest rate - and market psychology

26. Defaulting on debt has a __________ that intertwines all countries in Europe.
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
Relative price differences and ppp
domino effect
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

27. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True
Spot rates and forward rates

28. How can transaction exposure be described?
The income form individual transacations
It helps them understand the influence of exchange rates on profitability of trade investment deals
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates and forward rates

29. What is the second thing that determines the Forex rates?
Paying foreign currency payable before dues as a result expected currency appreciation
Investor psychology
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply

30. What is the first roels of the U.S. dollar outside the U.S.?
u.s. dollar
A common reference
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

31. What are other strategies for managing forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

32. What are the purposes of fiscal policies?
Exchange rates are determined by the demand and supply for different currencies
Establish central control and attempts to forecast future exchange rates
Collecting & spending of money by the government
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

33. What is hedging?

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34. Most Transaction inovolve...
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
u.s. dollar
Reserve currency
A common reference

35. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Reserve currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Goods and services of one country can be exchanged for the goods and services of another country

36. What is the second issue with EFSF?
State driven recapitalization are now needed
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
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

37. What is the first issue with EFSF?
Intervention currency (peg country currency)
Interest rates and money supply
1. distribute productive assets 2. ensure assets are not concentrated in countries
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

38. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Goods and services of one country can be exchanged for the goods and services of another country
True
Monetary and fiscal policies
Firms future international earning power

39. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
State driven recapitalization are now needed
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

40. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Affected by fluctuation in foreign exchange values
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase their exposure to banking -'s banking center

41. What is the third characteristic of transaction exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Borrowing of funds in foreign currency
Exchange rate policies

42. What is a spot rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Borrowing of funds in foreign currency

43. Marekts are open...
Monetary and fiscal policies
State driven recapitalization are now needed
Control the amount of money in circulation - enforced by government policies - focus on growth rate
24/7

44. 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
Banks stability was measure at a 5% capital adequacy ratio
Increase currency values and protect against increases in foreign prices of goods and services
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

45. How and What is the purpose of distributing assets?
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
Vehicle currency(transaction between 2 less commonly used currencies)
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

46. 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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Affected by fluctuation in foreign exchange values
Collecting & spending of money by the government

47. What is economic exposure?
Relative price differences and ppp
Impact of currency exchange rate changes on reported financial statements
Transaction - translation and economic exposure
Firms future international earning power

48. What is the fourth thing that determines the forex rates?
Affected by fluctuation in foreign exchange values
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
Vehicle currency(transaction between 2 less commonly used currencies)

49. What are the types of Exchange Rate Fluctuations?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates and forward rates
It helps them understand the influence of exchange rates on profitability of trade investment deals
Monetary and fiscal policies

50. What is the real exchange rate?
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
A common reference
up to date