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Foreign Exchange Market

Subjects : business-skills, industries

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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. 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
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
State driven recapitalization are now needed

2. What is the characteristic of translation expose?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Delay collection of foreign currency receivables if currency is exception to appreciate
Measurement of past events
Impact of currency exchange rate changes on reported financial statements

3. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Delay collection of foreign currency receivables if currency is exception to appreciate
Firms future international earning power
London - New York - Tokyo - and Singapore
True

4. Defaulting on debt has a __________ that intertwines all countries in Europe.
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
domino effect
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Interest rates and money supply

5. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
London - New York - Tokyo - and Singapore
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase their exposure to banking -'s banking center

6. What are the two ways to reduce 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.
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
up to date
1. distribute productive assets 2. ensure assets are not concentrated in countries

7. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Transaction - translation and economic exposure
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
Banks stability was measure at a 5% capital adequacy ratio

8. What is the third 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
Forward exchange or spot exchange
London - New York - Tokyo - and Singapore
Reserve currency

9. What are some factors that influence exchange rates?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
24/7
Paying foreign currency payable before dues as a result expected currency appreciation
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

10. 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
Goods and services of one country can be exchanged for the goods and services of another country
Currency of one country can be exchanged for the currency of another country
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

11. What is the bandwagon effect when looking at form investor psychology ?
Spot rates - forward rates - and swaps
Group of investors movement in the same direction and same time or government intervention
Increase currency values and protect against increases in foreign prices of goods and services
Collecting & spending of money by the government

12. According to economic theories of exchage rate determination?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Large number of individuals and cos exchange of domestic currencies for a foreign 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
Exchange rates are determined by the demand and supply for different currencies

13. What is arbitrage?
Impact of currency exchange rate changes on reported financial statements
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

14. What are the important trading centers?
London - New York - Tokyo - and Singapore
Measurement of past events
State driven recapitalization are now needed
Increase currency values and protect against increases in foreign prices of goods and services

15. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
agreed upon austerity
Affected by fluctuation in foreign exchange values
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. When do countries use foreign exchange market?
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
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
agreed upon austerity
Group of investors movement in the same direction and same time or government intervention

17. The euro faces risks fo recapitalization?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Banks stability was measure at a 5% capital adequacy ratio
24/7
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

18. What is capital fight when looking at it form investor psychology?
Productivity and balance payments
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Forward exchange or spot exchange
Large number of individuals and cos exchange of domestic currencies for a foreign currency

19. What are other strategies for managing forex risk?
Productivity and balance payments
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values
London - New York - Tokyo - and Singapore

20. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Group of investors movement in the same direction and same time or government intervention
Firms future international earning power
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

21. How can transaction exposure be described?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The income form individual transacations
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

22. What is the second thing that determines the Forex rates?
Paying foreign currency payable before dues as a result expected currency appreciation
Inflation - interest rate - and market psychology
Interest rates and money supply
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

23. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Transaction - translation and economic exposure
True
Increase currency values and protect against increases in foreign prices of goods and services

24. What is the first characteristic of transaction exposure ?
Transaction - translation and economic exposure
Affected by fluctuation in foreign exchange values
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

25. What is the third thing that determines the forex rates?
Monetary and fiscal policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Productivity and balance payments
Inflation - interest rate - and market psychology

26. What is hedging?

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27. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date
Vehicle currency(transaction between 2 less commonly used 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

28. What are the three ways of insuring against a Forex risk?
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
Reserve currency
Increase currency values and protect against increases in foreign prices of goods and services

29. What is externally convertible currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Spot rates and forward rates

30. What is the second characteristic of lead strategy?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
up to date

31. What is free convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay collection of foreign currency receivables if currency is exception to appreciate
1. distribute productive assets 2. ensure assets are not concentrated in countries
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

32. What is the fourth characteristic of transaction exposure?
Impact of currency exchange rate changes on reported financial statements
Lending of funds in foreign currencies
domino effect
Increase their exposure to banking -'s banking center

33. What is a forward rate?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

34. What are the characteristics of economic exposure?
Delay payables if currency is expected to depreciate
Lead and lag 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

35. What is the purpose of not concentrating assets in countries?
Borrowing of funds in foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
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
1. distribute productive assets 2. ensure assets are not concentrated in countries

36. What is the nature of the forex market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
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
domino effect

37. What is a currency swamp?
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

38. 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
Reserve currency
u.s. dollar

39. What implications does understanding foreign exchange rates have on managers?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Goods and services of one country can be exchanged for the goods and services of another country
It helps them understand the influence of exchange rates on profitability of trade investment deals
Firms future international earning power

40. 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.
Firms future international earning power
Paying foreign currency payable before dues as a result expected currency appreciation
London - New York - Tokyo - and Singapore

41. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Firms future international earning power
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
domino effect

42. What are three factors that impact a country's future exchange rate movements?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Inflation - interest rate - and market psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency
An attempt to collect currency receivables early as result of expected depreciation

43. What is the fourth thing that determines the forex rates?
Reserve currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rate policies
It helps them understand the influence of exchange rates on profitability of trade investment deals

44. What is a spot rate?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies
Inflation - interest rate - and market psychology
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

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

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46. What is the second characteristic of transaction 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
Obligations for the purchase or sale of goods and services at previously agreed prices
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

47. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Inflation - interest rate - and market psychology
Exchange rate policies
Monetary and fiscal policies

48. What are some characteristics of swaps?
u.s. dollar
Borrowing of funds in foreign currency
Delay payables if currency is expected to depreciate
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

49. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Spot rates and forward rates
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Issue mo good loans so that profits from new business can eat away the losses form the bad
Control the amount of money in circulation - enforced by government policies - focus on growth rate

50. What are the first two things that determine Forex rates?
Investor psychology
Affected by fluctuation in foreign exchange values
Relative price differences and ppp
Group of investors movement in the same direction and same time or government intervention

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Foreign Exchange Market

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