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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 is the first characteristic of transaction exposure ?
Investor psychology
up to date
Affected by fluctuation in foreign exchange values
Increase their exposure to banking -'s banking center

2. What are the important trading centers?
Reserve currency
Transaction - translation and economic exposure
London - New York - Tokyo - and Singapore
State driven recapitalization are now needed

3. What is the first characteristic of lead strategy?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
An attempt to collect currency receivables early as result of expected depreciation
u.s. dollar

4. What is the third characteristic of transaction exposure?
u.s. dollar
Borrowing of funds in foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Affected by fluctuation in foreign exchange values

5. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
It helps them understand the influence of exchange rates on profitability of trade investment deals
Transaction - translation and economic exposure

6. What causes big mac prices to vary?
State driven recapitalization are now needed
Impact of currency exchange rate changes on reported financial statements
Monetary and fiscal policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages

7. What is the second issue with EFSF?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Investor psychology
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

8. What is the first roels of the U.S. dollar outside the U.S.?
The income form individual transacations
A common reference
True
Productivity and balance payments

9. How can transaction exposure be described?
The income form individual transacations
1. distribute productive assets 2. ensure assets are not concentrated 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
True

10. What is externally convertible currency
True
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Lead and lag strategies

11. What are the characteristics of economic exposure?
Investor psychology
Exchange rates are determined by the demand and supply for different currencies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

12. What are the first two things that determine Forex rates?
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
Relative price differences and ppp
Vehicle currency(transaction between 2 less commonly used currencies)

13. What are some factors that influence exchange rates?
Currency of one country can be exchanged for the currency of another country
1. distribute productive assets 2. ensure assets are not concentrated in countries
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
A common reference

14. 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
Measurement of past events
A common reference

15. What are the two ways to quote currency?
Monetary and fiscal policies
Reserve currency
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates and forward rates

16. 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
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
Firms future international earning power

17. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
agreed upon austerity
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

18. What is the third thing that determines the forex rates?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Productivity and balance payments
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Investor psychology

19. What holds true to Purchase Power Parity Theory?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Banks stability was measure at a 5% capital adequacy ratio

20. What implications does understanding foreign exchange rates have on managers?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Vehicle currency(transaction between 2 less commonly used currencies)
It helps them understand the influence of exchange rates on profitability of trade investment deals
Borrowing of funds in foreign currency

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

22. What are the purposes of fiscal policies?
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
Intervention currency (peg country currency)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Collecting & spending of money by the government

23. How and What is the purpose of distributing assets?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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

24. What is the fifth thing that determines the forex rates?
Delay payables if currency is expected to depreciate
Investor psychology
Productivity and balance payments
Exchange rates are determined by the demand and supply for different currencies

25. Marekts are open...
Impact of currency exchange rate changes on reported financial statements
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

26. What is non convertible currency?
Goods and services of one country can be exchanged for the goods and services of another country
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Reserve currency
Investor psychology

27. What is the first characteristic of lag strategy?
True
Delay collection of foreign currency receivables if currency is exception to appreciate
Impact of currency exchange rate changes on reported financial statements
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

28. What are some characteristics of swaps?
Spot rates and forward 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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Measurement of past events

29. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Increase their exposure to banking -'s banking center
Spot rates - forward rates - and swaps
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

30. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rate policies
True
Investor psychology

31. What are two methods of reducing translation and transaction exposure?
Increase their exposure to banking -'s banking center
Lead and lag strategies
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
agreed upon austerity

32. What are three factors that impact a country's future exchange rate movements?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Productivity and balance payments
Inflation - interest rate - and market psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

33. Bailout Fund of EFSF - What is this shiz nitz?
Spot rates - forward rates - and swaps
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Obligations for the purchase or sale of goods and services at previously agreed prices
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

34. What is the first issue with EFSF?
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
True
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Lending of funds in foreign currencies

35. What is the second thing that determines the Forex rates?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Interest rates and money supply
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Forward exchange or spot exchange

36. Most Transaction inovolve...
Issue mo good loans so that profits from new business can eat away the losses form the bad
Reserve currency
u.s. dollar
London - New York - Tokyo - and Singapore

37. What is the nature of the forex market?
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
Goods and services of one country can be exchanged for the goods and services of another country
Borrowing of funds in 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

38. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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

39. 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
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

40. What is the fourth thing that determines the forex rates?
Interest rates and money supply
Exchange rate policies
Currency of one country can be exchanged for the currency of another country
Spot rates - forward rates - and swaps

41. What are the two ways to reduce economic exposure?
Measurement of past events
Monetary and fiscal policies
A common reference
1. distribute productive assets 2. ensure assets are not concentrated in countries

42. What is the nominal exchange rate?
up to date
Paying foreign currency payable before dues as a result expected currency appreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Currency of one country can be exchanged for the currency of another country

43. What are the three ways of insuring against a Forex risk?
Exchange rate policies
Monetary and fiscal policies
Spot rates - forward rates - and swaps
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

44. 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
State driven recapitalization are now needed
Measurement of past events
It helps them understand the influence of exchange rates on profitability of trade investment deals

45. What is economic exposure?
Firms future international earning power
Investor psychology
Delay collection of foreign currency receivables if currency is exception to appreciate
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

46. What is the second characteristic of lead strategy?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
State driven recapitalization are now needed
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by fluctuation in foreign exchange values

47. What is the third role of the U.S. dollar outside the U.S.?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
domino effect
Exchange rates are determined by the demand and supply for different currencies
Reserve currency

48. Defaulting on debt has a __________ that intertwines all countries in Europe.
Delay payables if currency is expected to depreciate
Affected by fluctuation in foreign exchange values
domino effect
London - New York - Tokyo - and Singapore

49. 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
True
Establish central control and attempts to forecast future exchange rates
Delay collection of foreign currency receivables if currency is exception to appreciate

50. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
Transaction - translation and economic exposure
Delay collection of foreign currency receivables if currency is exception to appreciate
Productivity and balance payments