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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 are the important trading centers?
1. distribute productive assets 2. ensure assets are not concentrated in countries
up to date
Forward exchange or spot exchange
London - New York - Tokyo - and Singapore

2. What is the second characteristic of transaction exposure?
Banks stability was measure at a 5% capital adequacy ratio
Intervention currency (peg country currency)
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

3. Marekts are open...
A common reference
24/7
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Large number of individuals and cos exchange of domestic currencies for a foreign currency

4. What is hedging?

5. What is the first issue with EFSF?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign 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
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

6. What is the second thing that determines the Forex rates?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
domino effect
Affected by fluctuation in foreign exchange values
Interest rates and money supply

7. What is the nominal exchange rate?
Intervention currency (peg country currency)
Group of investors movement in the same direction and same time or government intervention
Currency of one country can be exchanged for the currency of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

8. What implications does understanding foreign exchange rates have on managers?
London - New York - Tokyo - and Singapore
Forward exchange or spot exchange
It helps them understand the influence of exchange rates on profitability of trade investment deals
Control the amount of money in circulation - enforced by government policies - focus on growth rate

9. What is the fourth characteristic of transaction exposure?
Lending of funds 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

10. What are the three different types of foreign exchange rate risks?
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Transaction - translation and economic exposure

11. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Collecting & spending of money by the government
24/7
Interest rates and money supply

12. What are the first two things that determine Forex rates?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Monetary and fiscal policies
Relative price differences and ppp

13. What is the third role of the U.S. dollar outside the U.S.?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Interest rates and money supply
Reserve currency

14. What is the fourth roles of the U.S. dollar outside the U.S.?
Reserve currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
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

15. What is the second characteristic of lead strategy?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
24/7
Lending of funds in foreign currencies
Paying foreign currency payable before dues as a result expected currency appreciation

16. According to economic theories of exchage rate determination?
Group of investors movement in the same direction and same time or government intervention
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
Exchange rates are determined by the demand and supply for different currencies

17. How do you insure or hedge against a Forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Forward exchange or spot exchange
Currency of one country can be exchanged for the currency of another country

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

19. No single theory can explain explain the causes the value of currencies to change. True or False?
London - New York - Tokyo - and Singapore
up to date
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
True

20. What are two methods of reducing translation and transaction exposure?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lead and lag strategies
24/7
True

21. What is arbitrage?
Banks stability was measure at a 5% capital adequacy ratio
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Paying foreign currency payable before dues as a result expected currency appreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

22. What are the two ways to reduce economic exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Intervention currency (peg country currency)

23. What are the types of Exchange Rate Fluctuations?
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Monetary and fiscal policies

24. What is the second characteristic of lag strategy?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
A common reference
Delay payables if currency is expected to depreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

25. What is the fifth thing that determines the forex rates?
Investor 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
London - New York - Tokyo - and Singapore
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

26. What is a forward rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
domino effect
Paying foreign currency payable before dues as a result expected currency appreciation
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

27. What is economic exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. distribute productive assets 2. ensure assets are not concentrated in countries
Firms future international earning power
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

28. What is the characteristic of translation expose?
agreed upon austerity
Measurement of past events
u.s. dollar
Lending of funds in foreign currencies

29. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Spot rates - forward rates - and swaps
Exchange rates are determined by the demand and supply for different currencies

30. How can transaction exposure be described?
24/7
Paying foreign currency payable before dues as a result expected currency appreciation
The income form individual transacations
Delay collection of foreign currency receivables if currency is exception to appreciate

31. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign 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

32. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
Goods and services of one country can be exchanged for the goods and services of another country
Transaction - translation and economic exposure
Collecting & spending of money by the government

33. What is the first characteristic of lead strategy?
Increase currency values and protect against increases in foreign prices of goods and services
Lead and lag strategies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
An attempt to collect currency receivables early as result of expected depreciation

34. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Lead and lag strategies
Borrowing of funds in foreign currency
A common reference

35. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Exchange rate 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
Firms future international earning power

36. What is the first characteristic of transaction exposure ?
Intervention currency (peg country currency)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Affected by fluctuation in foreign exchange values
Paying foreign currency payable before dues as a result expected currency appreciation

37. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Lead and lag strategies
Measurement of past events
True
Establish central control and attempts to forecast future exchange rates

38. 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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

39. What are the two ways to quote currency?
Delay payables if currency is expected to depreciate
Spot rates and forward rates
State driven recapitalization are now needed
It helps them understand the influence of exchange rates on profitability of trade investment deals

40. What is free convertible currency?
Banks stability was measure at a 5% capital adequacy ratio
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

41. What is the law of one price?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Measurement of past events
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
Vehicle currency(transaction between 2 less commonly used currencies)

42. Bailout Fund of EFSF - What is this shiz nitz?
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

43. How and What is the purpose of distributing assets?
Forward exchange or spot exchange
1. distribute productive assets 2. ensure assets are not concentrated in countries
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

44. The euro faces risks fo recapitalization?
Relative price differences and ppp
Increase their exposure to banking -'s banking center
Banks stability was measure at a 5% capital adequacy ratio
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

45. 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
Obligations for the purchase or sale of goods and services at previously agreed prices
True
1. distribute productive assets 2. ensure assets are not concentrated in countries

46. What is externally convertible currency
Spot rates and forward rates
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Intervention currency (peg country currency)

47. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Vehicle currency(transaction between 2 less commonly used currencies)
1. distribute productive assets 2. ensure assets are not concentrated in countries

48. What is non convertible currency?
Monetary and fiscal policies
An attempt to collect currency receivables early as result of expected depreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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. What are some factors that influence exchange rates?
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. distribute productive assets 2. ensure assets are not concentrated in countries
Measurement of past events

50. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
24/7
Exchange rate policies
up to date