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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 a forward rate?
up to date
Measurement of past events
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)

2. It is important to stay __________ with your current events
Increase their exposure to banking -'s banking center
Affected by fluctuation in foreign exchange values
Group of investors movement in the same direction and same time or government intervention
up to date

3. 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Spot rates - forward rates - and swaps
Group of investors movement in the same direction and same time or government intervention

4. 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events

5. What is the fourth characteristic of transaction 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
Lending of funds in foreign currencies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies

6. What are the types of Exchange Rate Fluctuations?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries

7. What are the first two things that determine Forex rates?
Measurement of past events
Relative price differences and ppp
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay collection of foreign currency receivables if currency is exception to appreciate

8. How can translation exposure be described?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Collecting & spending of money by the government
Reserve currency
Impact of currency exchange rate changes on reported financial statements

9. What are three factors that impact a country's future exchange rate movements?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Inflation - interest rate - and market psychology
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

10. What are the two ways to quote currency?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates and forward rates
Spot rates - forward rates - and swaps
Measurement of past events

11. What are the characteristics of economic exposure?
A common reference
24/7
Vehicle currency(transaction between 2 less commonly used currencies)
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

12. What is the third thing that determines the forex rates?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments
Lead and lag strategies

13. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
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)
24/7

14. What do monetary policies do?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Control the amount of money in circulation - enforced by government policies - focus on growth rate
London - New York - Tokyo - and Singapore
up to date

15. What is externally convertible currency
Paying foreign currency payable before dues as a result expected currency appreciation
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
True

16. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
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
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
Measurement of past events

17. What is the fourth thing that determines the forex rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values
up to date
Exchange rate policies

18. What is hedging?

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19. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
up to date
True
Measurement of past events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

20. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Spot rates - forward rates - and swaps
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

21. What is the second role of the U.S. dollar outside the U.S. ?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Reserve currency
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

22. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Currency of one country can be exchanged for the currency of another country
Group of investors movement in the same direction and same time or government intervention
Interest rates and money supply

23. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Investor psychology
A common reference

24. What is the real exchange rate?
24/7
Goods and services of one country can be exchanged for the goods and services 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
Measurement of past events

25. 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
State driven recapitalization are now needed
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

26. What is the first roels of the U.S. dollar outside the U.S.?
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
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
A common reference

27. What is the nominal exchange rate?
An attempt to collect currency receivables early as result of expected depreciation
Spot rates - forward rates - and swaps
A common reference
Currency of one country can be exchanged for the currency of another country

28. Bailout Fund of EFSF - What is this shiz nitz?
Spot rates and forward rates
u.s. dollar
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lending of funds in foreign currencies

29. What is non convertible currency?
Paying foreign currency payable before dues as a result expected currency appreciation
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

30. No single theory can explain explain the causes the value of currencies to change. True or False?
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
True

31. Most Transaction inovolve...
u.s. dollar
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. 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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

32. What is the first characteristic of transaction exposure ?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by fluctuation in foreign exchange values
domino effect

33. What are some factors that influence exchange rates?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Productivity and balance payments
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

34. What is the law of one price?
Exchange rates are determined by the demand and supply for different currencies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

35. When do countries use foreign exchange market?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
It helps them understand the influence of exchange rates on profitability of trade investment deals
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 currency values and protect against increases in foreign prices of goods and services

36. What is the characteristic of translation expose?
Measurement of past events
Firms future international earning power
The income form individual transacations
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

37. Greece has not defaulted because it has not been able to fully implement its...
Transaction - translation and economic exposure
agreed upon austerity
London - New York - Tokyo - and Singapore
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

38. According to economic theories of exchage rate determination?
State driven recapitalization are now needed
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rates are determined by the demand and supply for different currencies

39. What is the third role of the U.S. dollar outside the U.S.?
Collecting & spending of money by the government
It helps them understand the influence of exchange rates on profitability of trade investment deals
Reserve currency
Measurement of past events

40. Burger economics!!! Why do we use it?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Establish central control and attempts to forecast future exchange rates
Affected by fluctuation in foreign exchange values
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

41. What is free convertible currency?
Banks stability was measure at a 5% capital adequacy ratio
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

42. When do countries use the foreign exchange market?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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.
Delay payables if currency is expected to depreciate

43. What is the second 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.
up to date
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
Obligations for the purchase or sale of goods and services at previously agreed prices

44. The euro faces risks fo recapitalization?
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
Transaction - translation and economic exposure
Banks stability was measure at a 5% capital adequacy ratio
It helps them understand the influence of exchange rates on profitability of trade investment deals

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

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46. What is the purpose of not concentrating assets in countries?
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
Increase currency values and protect against increases in foreign prices of goods and services
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

47. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Borrowing of funds in foreign currency
Collecting & spending of money by the government

48. What holds true to Purchase Power Parity Theory?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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
Spot rates and forward rates

49. What is the fourth roles 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
Vehicle currency(transaction between 2 less commonly used currencies)
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)

50. How do you establish central control?
Collecting & spending of money by the government
Spot rates - forward rates - and swaps
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Establish central control and attempts to forecast future exchange rates

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Foreign Exchange Market

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