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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.
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 first roels of the U.S. dollar outside the U.S.?
The income form individual transacations
A common reference
Collecting & spending of money by the government
An attempt to collect currency receivables early as result of expected depreciation

2. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Forward exchange or spot exchange
Lead and lag strategies
State driven recapitalization are now needed
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

3. What is a spot rate?
up to date
Monetary and fiscal policies
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

4. What are some strategies for managing forex risk?
Affected by fluctuation in foreign exchange values
An attempt to collect currency receivables early as result of expected depreciation
Transaction - translation and economic exposure
Establish central control and attempts to forecast future exchange rates

5. What is the fourth thing that determines the forex rates?
Lending of funds in foreign currencies
Exchange rate policies
Obligations for the purchase or sale of goods and services at previously agreed prices
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

6. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Exchange rates are determined by the demand and supply for different currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Impact of currency exchange rate changes on reported financial statements

7. What is arbitrage?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Establish central control and attempts to forecast future exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Firms future international earning power

8. How and What is the purpose of distributing assets?
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

9. What are the two ways to quote currency?
domino effect
A common reference
Spot rates and forward rates
Goods and services of one country can be exchanged for the goods and services of another country

10. Bailout Fund of EFSF - What is this shiz nitz?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Forward exchange or spot exchange
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

11. What implications does understanding foreign exchange rates have on managers?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Delay payables if currency is expected to depreciate
u.s. dollar
It helps them understand the influence of exchange rates on profitability of trade investment deals

12. What is capital fight when looking at it form investor psychology?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Reserve currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

13. What is the characteristic of translation expose?
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
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
Measurement of past events
Issue mo good loans so that profits from new business can eat away the losses form the bad

14. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
24/7
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
A common reference
True

15. What is the third characteristic of transaction exposure?
State driven recapitalization are now needed
Borrowing of funds in foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
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

16. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Currency of one country can be exchanged for the currency of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Measurement of past events

17. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
Increase currency values and protect against increases in foreign prices of goods and services
Group of investors movement in the same direction and same time or government intervention

18. What are the three different types of foreign exchange rate risks?
Relative price differences and ppp
Transaction - translation and economic exposure
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

19. What is the bandwagon effect when looking at form investor psychology ?
u.s. dollar
Collecting & spending of money by the government
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Group of investors movement in the same direction and same time or government intervention

20. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Delay payables if currency is expected to depreciate
Impact of currency exchange rate changes on reported financial statements

21. What are some characteristics of swaps?
Exchange rate policies
Investor psychology
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
Measurement of past events

22. No single theory can explain explain the causes the value of currencies to change. True or False?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The income form individual transacations
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True

23. What is non convertible currency?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Spot rates and forward rates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
24/7

24. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
up to date
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
Paying foreign currency payable before dues as a result expected currency appreciation

25. What are the first two things that determine Forex rates?
Relative price differences and ppp
up to date
Transaction - translation and economic exposure
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

26. What is a currency swamp?
Lending of funds in foreign currencies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor 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

27. What is the third role of the U.S. dollar outside the U.S.?
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies
Reserve 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

28. What causes big mac prices to vary?
Lead and lag strategies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Transportation costs - trade barriers - and not trade inputs such as rents or wages
up to date

29. When do countries use the foreign exchange market?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Increase currency values and protect against increases in foreign prices of goods and services
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

30. How do you insure or hedge against a Forex risk?
Interest rates and money supply
Forward exchange or spot exchange
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments

31. According to economic theories of exchage rate determination?
Delay payables if currency is expected to depreciate
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. 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 rates are determined by the demand and supply for different currencies

32. What is economic exposure?
Spot rates and forward rates
Investor psychology
Firms future international earning power
Vehicle currency(transaction between 2 less commonly used currencies)

33. What is the fifth thing that determines the forex rates?
London - New York - Tokyo - and Singapore
Impact of currency exchange rate changes on reported financial statements
Investor psychology
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

34. What is free convertible currency?
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Impact of currency exchange rate changes on reported financial statements

35. What are some factors that influence exchange rates?
London - New York - Tokyo - and Singapore
A common reference
Issue mo good loans so that profits from new business can eat away the losses form the bad
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

36. What is the second issue with EFSF?
agreed upon austerity
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

37. Defaulting on debt has a __________ that intertwines all countries in Europe.
Currency of one country can be exchanged for the currency of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad
Increase currency values and protect against increases in foreign prices of goods and services
domino effect

38. What is the law of one price?
Increase currency values and protect against increases in foreign prices of goods and services
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
True

39. What is the first issue with EFSF?
Exchange rates are determined by the demand and supply for different currencies
Reserve 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
Measurement of past events

40. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Forward exchange or spot exchange
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 are the important trading centers?
Exchange rates are determined by the demand and supply for different currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
London - New York - Tokyo - and Singapore
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

42. What is the second characteristic of lag strategy?
Lead and lag strategies
Delay payables if currency is expected to depreciate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar

43. It is important to stay __________ with your current events
agreed upon austerity
up to date
Paying foreign currency payable before dues as a result expected currency appreciation
Group of investors movement in the same direction and same time or government intervention

44. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Reserve currency
Measurement of past events
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

45. What is the fourth roles of the U.S. dollar outside the U.S.?
Affected by fluctuation in foreign exchange values
Vehicle currency(transaction between 2 less commonly used currencies)
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency

46. Marekts are open...
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
24/7
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

47. 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
Relative price differences and ppp
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

48. How can transaction exposure be described?
Delay collection of foreign currency receivables if currency is exception to appreciate
The income form individual transacations
Lead and lag strategies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

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

50. What is the second role of the U.S. dollar outside the U.S. ?
24/7
Intervention currency (peg country currency)
The income form individual transacations
Transaction - translation and economic exposure