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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. How can transaction exposure be described?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The income form individual transacations
Investor psychology
Spot rates and forward rates

2. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Inflation - interest rate - and market psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Lead and lag strategies

3. What is the second role of the U.S. dollar outside the U.S. ?
Interest rates and money supply
Intervention currency (peg country currency)
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
Spot rates and forward rates

4. What is the third role of the U.S. dollar outside the U.S.?
Reserve 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
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)

5. What is the second characteristic of lag strategy?
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay payables if currency is expected to depreciate

6. What is free convertible currency?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Monetary and fiscal policies

7. What is the fourth thing that determines the forex rates?
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
Exchange rate policies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. distribute productive assets 2. ensure assets are not concentrated in countries

8. What is hedging?

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

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10. How and What is the purpose of distributing assets?
Inflation - interest rate - and market psychology
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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)

11. What is the first issue with EFSF?
Increase currency values and protect against increases in foreign prices of goods and services
London - New York - Tokyo - and Singapore
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
Delay collection of foreign currency receivables if currency is exception to appreciate

12. What are the two ways to quote currency?
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates and forward rates
Exchange rates are determined by the demand and supply for different currencies
Collecting & spending of money by the government

13. Bailout Fund of EFSF - What is this shiz nitz?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Lead and lag strategies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

14. How do you establish central control?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
A common reference
Monetary and fiscal policies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

15. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Collecting & spending of money by the government
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
24/7

16. What is the nominal exchange rate?
Delay payables if currency is expected to depreciate
Inflation - interest rate - and market psychology
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country

17. What is the second issue with EFSF?
up to date
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
Paying foreign currency payable before dues as a result expected currency appreciation
Collecting & spending of money by the government

18. Burger economics!!! Why do we use it?
Productivity and balance payments
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

19. What are the characteristics of economic exposure?
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Lending of funds in foreign currencies
Establish central control and attempts to forecast future exchange rates

20. What is the purpose of not concentrating assets in countries?
Banks stability was measure at a 5% capital adequacy ratio
Collecting & spending of money by the government
Increase currency values and protect against increases in foreign prices of goods and services
Investor psychology

21. It is important to stay __________ with your current events
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date
Spot rates and forward rates
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

22. Marekts are open...
Inflation - interest rate - and market psychology
It helps them understand the influence of exchange rates on profitability of trade investment deals
24/7
Delay collection of foreign currency receivables if currency is exception to appreciate

23. What is the nature of the forex market?
1. distribute productive assets 2. ensure assets are not concentrated in countries
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
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

24. What are the important trading centers?
London - New York - Tokyo - and Singapore
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
agreed upon austerity
Delay payables if currency is expected to depreciate

25. What is the first roels of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
A common reference
London - New York - Tokyo - and Singapore
An attempt to collect currency receivables early as result of expected depreciation

26. What implications does understanding foreign exchange rates have on managers?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Intervention currency (peg country currency)
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lending of funds in foreign currencies

27. No single theory can explain explain the causes the value of currencies to change. True or False?
A common reference
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
True

28. What is the third characteristic of transaction exposure?
up to date
Borrowing of funds in foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation
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

29. What are some characteristics of swaps?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Vehicle currency(transaction between 2 less commonly used currencies)
Paying foreign currency payable before dues as a result expected currency appreciation

30. What is arbitrage?
Currency of one country can be exchanged for the currency of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology

31. What are the types of Exchange Rate Fluctuations?
agreed upon austerity
The income form individual transacations
Monetary and fiscal policies
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

32. What are the three different types of foreign exchange rate risks?
Paying foreign currency payable before dues as a result expected currency appreciation
Measurement of past events
Transaction - translation and economic exposure
Goods and services of one country can be exchanged for the goods and services of another country

33. What is the second thing that determines the Forex rates?
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply
Firms future international earning power
Control the amount of money in circulation - enforced by government policies - focus on growth rate

34. What are the two ways to reduce economic exposure?
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. distribute productive assets 2. ensure assets are not concentrated in countries
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

35. Most Transaction inovolve...
u.s. dollar
agreed upon austerity
Banks stability was measure at a 5% capital adequacy ratio
Relative price differences and ppp

36. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Borrowing of funds in foreign currency
Measurement of past events

37. According to economic theories of exchage rate determination?
Banks stability was measure at a 5% capital adequacy ratio
An attempt to collect currency receivables early as result of expected depreciation
Increase their exposure to banking -'s banking center
Exchange rates are determined by the demand and supply for different currencies

38. What is the third thing that determines the forex rates?
Exchange rate policies
Obligations for the purchase or sale of goods and services at previously agreed prices
Transaction - translation and economic exposure
Productivity and balance payments

39. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Vehicle currency(transaction between 2 less commonly used currencies)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Establish central control and attempts to forecast future exchange rates

40. What is a currency swamp?
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
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp

41. What are three factors that impact a country's future exchange rate movements?
Paying foreign currency payable before dues as a result expected currency appreciation
Transaction - translation and economic exposure
Inflation - interest rate - and market psychology
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

42. What are other strategies for managing forex risk?
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
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

43. What is the law of one price?
True
Transaction - translation and economic exposure
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
Increase currency values and protect against increases in foreign prices of goods and services

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

45. What is non convertible currency?
Interest rates and money supply
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
Productivity and balance payments

46. When do countries use foreign exchange market?
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
Increase their exposure to banking -'s banking center
Goods and services of one country can be exchanged for the goods and services of another country
1. distribute productive assets 2. ensure assets are not concentrated in countries

47. What is a forward rate?
Relative price differences and ppp
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
Vehicle currency(transaction between 2 less commonly used currencies)

48. What is the first characteristic of lead strategy?
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
An attempt to collect currency receivables early as result of expected depreciation
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
A common reference

49. When do countries use the foreign exchange market?
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
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay payables if currency is expected to depreciate

50. Greece has not defaulted because it has not been able to fully implement its...
A common reference
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
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
agreed upon austerity

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