Test your basic knowledge |

Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
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 first two things that determine Forex rates?
Intervention currency (peg country currency)
Relative price differences and ppp
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates - forward rates - and swaps

2. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Establish central control and attempts to forecast future exchange rates
domino effect
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

3. What are the two ways to quote currency?
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
Affected by fluctuation in foreign exchange values
Measurement of past events

4. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
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
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

5. What is the fifth thing that determines the forex rates?
Obligations for the purchase or sale of goods and services at previously agreed prices
Lead and lag strategies
Investor psychology
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

6. What implications does understanding foreign exchange rates have on managers?
True
Interest rates and money supply
An attempt to collect currency receivables early as result of expected depreciation
It helps them understand the influence of exchange rates on profitability of trade investment deals

7. What are the characteristics of economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates - forward rates - and swaps
Obligations for the purchase or sale of goods and services at previously agreed prices
24/7

8. How can translation exposure be described?
True
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
Group of investors movement in the same direction and same time or government intervention
Impact of currency exchange rate changes on reported financial statements

9. Most Transaction inovolve...
u.s. dollar
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad
Banks stability was measure at a 5% capital adequacy ratio

10. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
Vehicle currency(transaction between 2 less commonly used currencies)
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

11. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase currency values and protect against increases in foreign prices of goods and services
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies

12. What is a spot rate?
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)
Productivity and balance payments
Banks stability was measure at a 5% capital adequacy ratio

13. What are the three different types of foreign exchange rate risks?
True
Transaction - translation and economic exposure
Investor psychology
True

14. What are some characteristics of swaps?
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. distribute productive assets 2. ensure assets are not concentrated in countries
Impact of currency exchange rate changes on reported financial statements

15. What is the third characteristic of transaction exposure?
Firms future international earning power
Investor psychology
Impact of currency exchange rate changes on reported financial statements
Borrowing of funds in foreign currency

16. The euro faces risks fo recapitalization?
domino effect
Banks stability was measure at a 5% capital adequacy ratio
24/7
It helps them understand the influence of exchange rates on profitability of trade investment deals

17. How and What is the purpose of distributing assets?
Forward exchange or spot exchange
London - New York - Tokyo - and Singapore
Spot rates and forward rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

18. What is the fourth roles of the U.S. dollar outside the U.S.?
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
Vehicle currency(transaction between 2 less commonly used currencies)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

19. What is economic exposure?
Firms future international earning power
Investor psychology
An attempt to collect currency receivables early as result of expected depreciation
Spot rates and forward rates

20. What is the second characteristic of lag strategy?
Spot rates and forward rates
Exchange rates are determined by the demand and supply for different currencies
Affected by fluctuation in foreign exchange values
Delay payables if currency is expected to depreciate

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

22. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Vehicle currency(transaction between 2 less commonly used currencies)
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transaction - translation and economic exposure

23. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
agreed upon austerity
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
State driven recapitalization are now needed

24. Marekts are open...
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.
24/7
Spot rates - forward rates - and swaps

25. What do monetary policies do?
An attempt to collect currency receivables early as result of expected depreciation
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Increase their exposure to banking -'s banking center
Currency of one country can be exchanged for the currency of another country

26. What are some strategies for managing forex risk?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation
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

27. What is the fourth characteristic of transaction exposure?
Investor psychology
Lending of funds in foreign currencies
Establish central control and attempts to forecast future exchange rates
24/7

28. What is non convertible currency?
Increase currency values and protect against increases in foreign prices of goods and services
Impact of currency exchange rate changes on reported financial statements
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

29. What is the nature of the forex market?
Spot rates - forward rates - and swaps
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. distribute productive assets 2. ensure assets are not concentrated in countries

30. When do countries use foreign exchange market?
Banks stability was measure at a 5% capital adequacy ratio
Lead and lag strategies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

31. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Collecting & spending of money by the government
Transaction - translation and economic exposure

32. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Firms future international earning power
up to date
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

33. 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
Delay collection of foreign currency receivables if currency is exception to appreciate
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
Intervention currency (peg country currency)

34. What causes big mac prices to vary?
Lending of funds in foreign currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Transportation costs - trade barriers - and not trade inputs such as rents or wages

35. 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies
Reserve currency

36. No single theory can explain explain the causes the value of currencies to change. True or False?
Banks stability was measure at a 5% capital adequacy ratio
Forward exchange or spot exchange
Lending of funds in foreign currencies
True

37. What is the real exchange rate?
Affected by fluctuation in foreign exchange values
Goods and services of one country can be exchanged for the goods and services of another country
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

38. What is the second thing that determines the Forex rates?
Interest rates and money supply
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments
up to date

39. 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
Monetary and fiscal policies
Investor psychology
Firms future international earning power

40. 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
Forward exchange or spot exchange
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
agreed upon austerity

41. What holds true to Purchase Power Parity Theory?
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
State driven recapitalization are now needed
Lending of funds in foreign currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

42. What is arbitrage?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Delay payables if currency is expected to depreciate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
1. distribute productive assets 2. ensure assets are not concentrated in countries

43. What is the first issue with EFSF?
Monetary and fiscal policies
Increase currency values and protect against increases in foreign prices of goods and services
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. 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

44. What is the second characteristic of transaction exposure?
Measurement of past events
Exchange rate policies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Obligations for the purchase or sale of goods and services at previously agreed prices

45. What is the third role of the U.S. dollar outside the U.S.?
Spot rates - forward rates - and swaps
Reserve currency
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
Monetary and fiscal policies

46. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
State driven recapitalization are now needed
A common reference
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

47. What is the nominal exchange rate?
Obligations for the purchase or sale of goods and services at previously agreed prices
Measurement of past events
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Currency of one country can be exchanged for the currency of another country

48. What is the third thing that determines the forex rates?
Lead and lag strategies
Borrowing of funds in foreign currency
Monetary and fiscal policies
Productivity and balance payments

49. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Spot rates and forward rates
Impact of currency exchange rate changes on reported financial statements
Inflation - interest rate - and market psychology

50. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Firms future international earning power
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