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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.
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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 second characteristic of transaction exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values
Obligations for the purchase or sale of goods and services at previously agreed prices

2. What are some factors that influence exchange rates?
Exchange rates are determined by the demand and supply for different currencies
Inflation - interest rate - and market psychology
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Obligations for the purchase or sale of goods and services at previously agreed prices

3. What holds true to Purchase Power Parity Theory?
24/7
agreed upon austerity
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
Inflation - interest rate - and market psychology

4. What is the fourth roles of the U.S. dollar outside the U.S.?
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
Inflation - interest rate - and market psychology
Vehicle currency(transaction between 2 less commonly used currencies)
Reserve currency

5. 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
Increase their exposure to banking -'s banking center
Exchange rates are determined by the demand and supply for different currencies

6. What is the third thing that determines the forex rates?
Delay collection of foreign currency receivables if currency is exception to appreciate
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Productivity and balance payments
Investor psychology

7. What is externally convertible currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The income form individual transacations
Lending of funds in foreign currencies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

8. Defaulting on debt has a __________ that intertwines all countries in Europe.
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
London - New York - Tokyo - and Singapore
domino effect
Interest rates and money supply

9. It is important to stay __________ with your current events
Measurement of past events
Banks stability was measure at a 5% capital adequacy ratio
Productivity and balance payments
up to date

10. What is the fourth thing that determines the forex rates?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Group of investors movement in the same direction and same time or government intervention
Exchange rate policies

11. What is the second characteristic of lag strategy?
Intervention currency (peg country currency)
Delay payables if currency is expected to depreciate
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
A common reference

12. What are other strategies for managing forex risk?
Inflation - interest rate - and market psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

13. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
domino effect

14. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Borrowing of funds in foreign currency
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 hedging?

16. Marekts are open...
24/7
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Vehicle currency(transaction between 2 less commonly used currencies)
Borrowing of funds in foreign currency

17. What is the bandwagon effect when looking at form investor psychology ?
Spot rates and forward rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Group of investors movement in the same direction and same time or government intervention
Collecting & spending of money by the government

18. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Exchange rate policies
Investor psychology
An attempt to collect currency receivables early as result of expected depreciation

19. What is the third characteristic of transaction exposure?
Exchange rates are determined by the demand and supply for different currencies
Impact of currency exchange rate changes on reported financial statements
Borrowing of funds in foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

20. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
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
Firms future international earning power
Issue mo good loans so that profits from new business can eat away the losses form the bad

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

22. What are the two ways to quote currency?
Goods and services of one country can be exchanged for the goods and services of another country
Paying foreign currency payable before dues as a result expected currency appreciation
Productivity and balance payments
Spot rates and forward rates

23. What implications does understanding foreign exchange rates have on managers?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates and forward rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

24. What is the first issue with EFSF?
Exchange rates are determined by the demand and supply for different currencies
Delay payables if currency is expected to depreciate
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

25. What is the characteristic of translation expose?
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Vehicle currency(transaction between 2 less commonly used currencies)
Measurement of past events

26. What are the three ways of insuring against a Forex risk?
True
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

27. What is the first characteristic of transaction exposure ?
Collecting & spending of money by the government
Lead and lag strategies
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
Affected by fluctuation in foreign exchange values

28. What is the first characteristic of lag strategy?
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
A common reference
Reserve currency
Delay collection of foreign currency receivables if currency is exception to appreciate

29. How do you insure or hedge against a Forex 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
Intervention currency (peg country currency)
Forward exchange or spot exchange
Control the amount of money in circulation - enforced by government policies - focus on growth rate

30. What is economic exposure?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Firms future international earning power
An attempt to collect currency receivables early as result of expected depreciation
Productivity and balance payments

31. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Exchange rate policies
domino effect
A common reference
True

32. What is a spot rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

33. What is the fifth thing that determines the forex rates?
True
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
Investor psychology
A common reference

34. What are some strategies for managing forex risk?
Forward exchange or spot exchange
Group of investors movement in the same direction and same time or government intervention
Establish central control and attempts to forecast future exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate

35. According to economic theories of exchage rate determination?
Interest rates and money supply
24/7
Exchange rates are determined by the demand and supply for different currencies
Measurement of past events

36. What is the third role of the U.S. dollar outside the U.S.?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Forward exchange or spot exchange
Goods and services of one country can be exchanged for the goods and services of another country
Reserve currency

37. What is the purpose of not concentrating assets in countries?
Firms future international earning power
Issue mo good loans so that profits from new business can eat away the losses form the bad
Lending of funds in foreign currencies
Increase currency values and protect against increases in foreign prices of goods and services

38. What is the first roels of the U.S. dollar outside the U.S.?
domino effect
Goods and services of one country can be exchanged for the goods and services of another country
The income form individual transacations
A common reference

39. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
An attempt to collect currency receivables early as result of expected depreciation
A common reference
Issue mo good loans so that profits from new business can eat away the losses form the bad
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

40. Bailout Fund of EFSF - What is this shiz nitz?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Banks stability was measure at a 5% capital adequacy ratio
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

41. What causes big mac prices to vary?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Firms future international earning power
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

42. Burger economics!!! Why do we use it?
The income form individual transacations
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

43. What are some characteristics of swaps?
Monetary and fiscal policies
Delay payables if currency is expected to depreciate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

44. No single theory can explain explain the causes the value of currencies to change. True or False?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

45. What is arbitrage?
Paying foreign currency payable before dues as a result expected currency appreciation
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Investor psychology
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

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

47. What are two methods of reducing translation and transaction exposure?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Lead and lag strategies
Increase currency values and protect against increases in foreign prices of goods and services
Impact of currency exchange rate changes on reported financial statements

48. What are the types of Exchange Rate Fluctuations?
Banks stability was measure at a 5% capital adequacy ratio
Monetary and fiscal 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
domino effect

49. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
u.s. dollar
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
State driven recapitalization are now needed

50. What are the two ways to reduce economic exposure?
agreed upon austerity
Investor psychology
Intervention currency (peg country currency)
1. distribute productive assets 2. ensure assets are not concentrated in countries