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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. How do you insure or hedge against a Forex risk?
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
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

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

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3. What is non convertible currency?
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
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

4. What is the fourth thing that determines the forex rates?
Exchange rate policies
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
The income form individual transacations
Lead and lag strategies

5. What are the three ways of insuring against a Forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Increase their exposure to banking -'s banking center
Spot rates - forward rates - and swaps
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

6. What are the important trading centers?
Establish central control and attempts to forecast future exchange rates
Inflation - interest rate - and market psychology
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
London - New York - Tokyo - and Singapore

7. What implications does understanding foreign exchange rates have on managers?
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
Investor psychology
Currency of one country can be exchanged for the currency of another country
It helps them understand the influence of exchange rates on profitability of trade investment deals

8. What are the first two things that determine Forex 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
Group of investors movement in the same direction and same time or government intervention
Relative price differences and ppp
Firms future international earning power

9. What are the types of Exchange Rate Fluctuations?
domino effect
Monetary and fiscal 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

10. No single theory can explain explain the causes the value of currencies to change. True or False?
The income form individual transacations
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Group of investors movement in the same direction and same time or government intervention
True

11. What is hedging?

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12. What is the nature of the forex market?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
An attempt to collect currency receivables early as result of expected depreciation

13. What is the fourth characteristic of transaction exposure?
True
Lending of funds in foreign currencies
Lead and lag strategies
Relative price differences and ppp

14. What is the first issue with EFSF?
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
Interest rates and money supply
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

15. 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
Delay payables if currency is expected to depreciate
up to date

16. What is the second characteristic of lag strategy?
up to date
Issue mo good loans so that profits from new business can eat away the losses form the bad
Delay payables if currency is expected to depreciate
Transaction - translation and economic exposure

17. What are two methods of reducing translation and transaction exposure?
Forward exchange or spot exchange
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Delay payables if currency is expected to depreciate
Lead and lag strategies

18. What are some factors that influence exchange rates?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Transaction - translation and economic exposure
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

19. The euro faces risks fo recapitalization?
Exchange rate policies
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
Collecting & spending of money by the government

20. Most Transaction inovolve...
Paying foreign currency payable before dues as a result expected currency appreciation
Monetary and fiscal policies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar

21. Marekts are open...
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
24/7
Measurement of past events

22. What is a forward rate?
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
Firms future international earning power
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

23. What is the fifth thing that determines the forex rates?
A common reference
Goods and services of one country can be exchanged for the goods and services of another country
Investor psychology
True

24. How do you establish central control?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
True
Control the amount of money in circulation - enforced by government policies - focus on growth rate

25. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Increase their exposure to banking -'s banking center

26. What is the bandwagon effect when looking at form investor psychology ?
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
Group of investors movement in the same direction and same time or government intervention
Control the amount of money in circulation - enforced by government policies - focus on growth rate

27. It is important to stay __________ with your current events
Productivity and balance payments
Increase currency values and protect against increases in foreign prices of goods and services
up to date
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

28. What is the second characteristic of transaction exposure?
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
True
agreed upon austerity

29. How can transaction exposure be described?
The income form individual transacations
Paying foreign currency payable before dues as a result expected currency appreciation
Productivity and balance payments
Reserve currency

30. What is externally convertible currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lead and lag strategies

31. When do countries use the foreign exchange market?
Collecting & spending of money by the government
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

32. What is the first characteristic of lag strategy?
A common reference
It helps them understand the influence of exchange rates on profitability of trade investment deals
Delay collection of foreign currency receivables if currency is exception to appreciate
An attempt to collect currency receivables early as result of expected depreciation

33. What is the third characteristic of transaction exposure?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Borrowing of funds in foreign currency
Monetary and fiscal policies
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

34. Defaulting on debt has a __________ that intertwines all countries in Europe.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
domino effect
Establish central control and attempts to forecast future exchange rates

35. According to economic theories of exchage rate determination?
An attempt to collect currency receivables early as result of expected depreciation
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate

36. What is the nominal exchange rate?
Monetary and fiscal policies
Delay payables if currency is expected to depreciate
Currency of one country can be exchanged for the currency of another country
Investor psychology

37. What is economic exposure?
Firms future international earning power
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals

38. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Impact of currency exchange rate changes on reported financial statements
True
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

39. What is the first characteristic of transaction exposure ?
24/7
Affected by fluctuation in foreign exchange values
It helps them understand the influence of exchange rates on profitability of trade investment deals
Interest rates and money supply

40. What are the three different types of foreign exchange rate risks?
Investor psychology
Monetary and fiscal policies
London - New York - Tokyo - and Singapore
Transaction - translation and economic exposure

41. What are the characteristics of economic exposure?
24/7
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
Lead and lag strategies

42. What holds true to Purchase Power Parity Theory?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Issue mo good loans so that profits from new business can eat away the losses form the bad

43. What is a spot rate?
Monetary and fiscal policies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Vehicle currency(transaction between 2 less commonly used currencies)
Goods and services of one country can be exchanged for the goods and services of another country

44. What are three factors that impact a country's future exchange rate movements?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Inflation - interest rate - and market psychology
domino effect
An attempt to collect currency receivables early as result of expected depreciation

45. What are the purposes of fiscal policies?
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
Collecting & spending of money by the government
Currency of one country can be exchanged for the currency of another country
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

46. What is a currency swamp?
A common reference
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lead and lag strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

47. What is capital fight when looking at it form investor psychology?
A common reference
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals
Large number of individuals and cos exchange of domestic currencies for a foreign currency

48. How can translation exposure be described?
Delay collection of foreign currency receivables if currency is exception to appreciate
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
Impact of currency exchange rate changes on reported financial statements
Group of investors movement in the same direction and same time or government intervention

49. What is the second issue with EFSF?
Inflation - interest rate - and market psychology
It helps them understand the influence of exchange rates on profitability of trade investment deals
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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

50. What are some strategies for managing forex risk?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Forward exchange or spot exchange
Investor psychology
Establish central control and attempts to forecast future exchange rates