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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. What is the characteristic of translation expose?
Measurement of past events
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
Paying foreign currency payable before dues as a result expected currency appreciation

2. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Borrowing of funds in foreign currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Group of investors movement in the same direction and same time or government intervention

3. What is the purpose of not concentrating assets in countries?
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
Transaction - translation and economic exposure
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Increase currency values and protect against increases in foreign prices of goods and services

4. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Collecting & spending of money by the government
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

5. Burger economics!!! Why do we use it?
Currency of one country can be exchanged for the currency of another country
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Exchange rates are determined by the demand and supply for different currencies
domino effect

6. What is the second role of the U.S. dollar outside the U.S. ?
Increase their exposure to banking -'s banking center
Exchange rates are determined by the demand and supply for different currencies
Intervention currency (peg country currency)
Productivity and balance payments

7. What is the second characteristic of lag strategy?
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
True
Delay payables if currency is expected to depreciate
Impact of currency exchange rate changes on reported financial statements

8. What are some characteristics of swaps?
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

9. Marekts are open...
Intervention currency (peg country currency)
Relative price differences and ppp
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
24/7

10. It is important to stay __________ with your current events
True
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by fluctuation in foreign exchange values
up to date

11. Bailout Fund of EFSF - What is this shiz nitz?
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
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

12. How and What is the purpose of distributing assets?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency

13. What is the third thing that determines the forex rates?
Exchange rates are determined by the demand and supply for different currencies
Productivity and balance payments
u.s. dollar
An attempt to collect currency receivables early as result of expected depreciation

14. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Delay collection of foreign currency receivables if currency is exception to appreciate
Issue mo good loans so that profits from new business can eat away the losses form the bad
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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

15. What is the fourth thing that determines the forex rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rate policies
Transaction - translation and economic exposure
Paying foreign currency payable before dues as a result expected currency appreciation

16. What is non convertible currency?
Borrowing of funds in foreign currency
Spot rates - forward rates - and swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)

17. When do countries use the foreign exchange market?
Borrowing of funds in foreign currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

18. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
up to date
Increase currency values and protect against increases in foreign prices of goods and services
State driven recapitalization are now needed

19. How can transaction exposure be described?
The income form individual transacations
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
domino effect

20. What is the second thing that determines the Forex rates?
Firms future international earning power
u.s. dollar
Interest rates and money supply
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

21. What are the purposes of fiscal policies?
Collecting & spending of money by the government
1. distribute productive assets 2. ensure assets are not concentrated in countries
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values

22. What is the first roels of the U.S. dollar outside the U.S.?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
A common reference
Affected by fluctuation in foreign exchange values

23. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
It helps them understand the influence of exchange rates on profitability of trade investment deals
Impact of currency exchange rate changes on reported financial statements

24. What implications does understanding foreign exchange rates have on managers?
London - New York - Tokyo - and Singapore
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
It helps them understand the influence of exchange rates on profitability of trade investment deals
Inflation - interest rate - and market psychology

25. 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
Spot rates - forward rates - and swaps
Lending of funds in foreign currencies
Forward exchange or spot exchange

26. What is the nature of the forex market?
State driven recapitalization are now needed
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

27. What is the third characteristic of transaction exposure?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Vehicle currency(transaction between 2 less commonly used currencies)
Borrowing of funds in foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

28. Defaulting on debt has a __________ that intertwines all countries in Europe.
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
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
domino effect

29. What are the important trading centers?
London - New York - Tokyo - and Singapore
Relative price differences and ppp
Firms future international earning power
Large number of individuals and cos exchange of domestic currencies for a foreign currency

30. What is capital fight when looking at it form investor psychology?
Delay collection of foreign currency receivables if currency is exception to appreciate
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Banks stability was measure at a 5% capital adequacy ratio
Currency of one country can be exchanged for the currency of another country

31. What is arbitrage?
Measurement of past events
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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 exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

32. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
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
Impact of currency exchange rate changes on reported financial statements
Group of investors movement in the same direction and same time or government intervention

33. What is the first characteristic of lead strategy?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Interest rates and money supply
Firms future international earning power
An attempt to collect currency receivables early as result of expected depreciation

34. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Exchange rate policies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Establish central control and attempts to forecast future exchange rates

35. What is the fifth thing that determines the forex rates?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Investor psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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

36. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Measurement of past events
Borrowing of funds in foreign currency
1. distribute productive assets 2. ensure assets are not concentrated in countries

37. What is the bandwagon effect when looking at form investor psychology ?
Currency of one country can be exchanged for the currency of another country
Borrowing of funds in foreign currency
Group of investors movement in the same direction and same time or government intervention
Forward exchange or spot exchange

38. How can translation exposure be described?
Establish central control and attempts to forecast future exchange rates
Firms future international earning power
Impact of currency exchange rate changes on reported financial statements
Measurement of past events

39. What are the three different types of foreign exchange rate risks?
Obligations for the purchase or sale of goods and services at previously agreed prices
Transaction - translation and economic exposure
The income form individual transacations
State driven recapitalization are now needed

40. What are the characteristics of 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
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Productivity and balance payments

41. What is the law of one price?
Inflation - interest rate - and market psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Spot rates - forward rates - and swaps
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

42. Most Transaction inovolve...
u.s. dollar
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Collecting & spending of money by the government
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

43. What is the nominal exchange rate?
Increase their exposure to banking -'s banking center
Currency of one country can be exchanged for the currency of another country
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
Forward exchange or spot exchange

44. What is the fourth roles of the U.S. dollar outside the U.S.?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
An attempt to collect currency receivables early as result of expected depreciation
Vehicle currency(transaction between 2 less commonly used currencies)

45. What is the second characteristic of transaction 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
True
Borrowing of funds in foreign currency
Obligations for the purchase or sale of goods and services at previously agreed prices

46. What are the two ways to quote currency?
Intervention currency (peg country currency)
Investor psychology
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates and forward rates

47. What is a currency swamp?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
Collecting & spending of money by the government

48. What is hedging?

49. How do you establish central control?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The income form individual transacations
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

50. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Intervention currency (peg country 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