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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. The euro faces risks fo recapitalization?
Interest rates and money supply
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Spot rates - forward rates - and swaps
Banks stability was measure at a 5% capital adequacy ratio

2. What is the fifth thing that determines the forex rates?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
Banks stability was measure at a 5% capital adequacy ratio
Control the amount of money in circulation - enforced by government policies - focus on growth rate

3. What are some characteristics of swaps?
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
A common reference
Transaction - translation and economic exposure

4. What is the characteristic of translation expose?
Currency of one country can be exchanged for the currency of another country
Lending of funds in foreign currencies
Measurement of past events
u.s. dollar

5. Bailout Fund of EFSF - What is this shiz nitz?
An attempt to collect currency receivables early as result of expected depreciation
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Exchange rates are determined by the demand and supply for different currencies
London - New York - Tokyo - and Singapore

6. What is capital fight when looking at it form investor psychology?
Group of investors movement in the same direction and same time or government intervention
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
Measurement of past events
Large number of individuals and cos exchange of domestic currencies for a foreign currency

7. What is the second thing that determines the Forex rates?
State driven recapitalization are now needed
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

8. What is non convertible currency?
Relative price differences and ppp
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
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

9. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency

10. What is the first roels of the U.S. dollar outside the U.S.?
Delay payables if currency is expected to depreciate
A common reference
Forward exchange or spot exchange
Vehicle currency(transaction between 2 less commonly used currencies)

11. What are three factors that impact a country's future exchange rate movements?
Reserve currency
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Inflation - interest rate - and market psychology

12. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Exchange rate policies
An attempt to collect currency receivables early as result of expected depreciation
True

13. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
True

14. What are two methods of reducing translation and 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
Lead and lag strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

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

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16. What is the nominal exchange rate?
up to date
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Currency of one country can be exchanged for the currency of another country
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

17. What are the first two things that determine Forex rates?
Lending of funds in foreign currencies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Paying foreign currency payable before dues as a result expected currency appreciation
Relative price differences and ppp

18. It is important to stay __________ with your current events
up to date
Paying foreign currency payable before dues as a result expected currency appreciation
Delay payables if currency is expected to depreciate
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

19. Burger economics!!! Why do we use it?
domino effect
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Banks stability was measure at a 5% capital adequacy ratio

20. What is economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Firms future international earning power
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
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

21. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Transaction - translation and economic exposure
Inflation - interest rate - and market psychology
up to date

22. When do countries use foreign exchange market?
Goods and services of one country can be exchanged for the goods and services of another country
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

23. What causes big mac prices to vary?
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
Exchange rate policies
Relative price differences and ppp
Transportation costs - trade barriers - and not trade inputs such as rents or wages

24. What is the bandwagon effect when looking at form investor psychology ?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Group of investors movement in the same direction and same time or government intervention
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Obligations for the purchase or sale of goods and services at previously agreed prices

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
Measurement of past events
Firms future international earning power
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

26. What is externally convertible currency
An attempt to collect currency receivables early as result of expected depreciation
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Large number of individuals and cos exchange of domestic currencies for a foreign currency

27. What is the fourth characteristic of transaction exposure?
A common reference
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
Lending of funds in foreign currencies

28. How and What is the purpose of distributing assets?
Delay payables if currency is expected to depreciate
True
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

29. What is free convertible currency?
Increase currency values and protect against increases in foreign prices of goods and services
State driven recapitalization are now needed
Spot rates - forward rates - and swaps
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

30. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Paying foreign currency payable before dues as a result expected currency appreciation
London - New York - Tokyo - and Singapore
Transaction - translation and economic exposure

31. What are the two ways to quote currency?
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Spot rates and forward rates

32. What are the types of Exchange Rate Fluctuations?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Firms future international earning power

33. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Increase currency values and protect against increases in foreign prices of goods and services
up to date
Increase their exposure to banking -'s banking center

34. What are some factors that influence exchange rates?
State driven recapitalization are now needed
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Increase currency values and protect against increases in foreign prices of goods and services
Delay collection of foreign currency receivables if currency is exception to appreciate

35. What are the purposes of fiscal policies?
agreed upon austerity
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Collecting & spending of money by the government
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

36. 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
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
Affected by fluctuation in foreign exchange values

37. What is the second issue with EFSF?
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
Firms future international earning power
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments

38. Most Transaction inovolve...
A common reference
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar

39. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Increase their exposure to banking -'s banking center
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
Exchange rates are determined by the demand and supply for different currencies

40. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
domino effect
It helps them understand the influence of exchange rates on profitability of trade investment deals
u.s. dollar

41. What is the third characteristic of transaction exposure?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Borrowing of funds in foreign currency
Group of investors movement in the same direction and same time or government intervention
u.s. dollar

42. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
State driven recapitalization are now needed
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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;future delievery in 30/60/90/180 days

43. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Increase their exposure to banking -'s banking center
Productivity and balance payments
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

44. What is the real exchange rate?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Goods and services of one country can be exchanged for the goods and services of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

45. How do you establish central control?
Relative price differences and ppp
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Delay payables if currency is expected to depreciate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

46. When do countries use the foreign exchange market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Monetary and fiscal policies

47. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies

48. What is the nature of the forex market?
Borrowing of funds in foreign currency
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

49. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
24/7
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

50. What is the second characteristic of lead strategy?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Paying foreign currency payable before dues as a result expected currency appreciation
Borrowing of funds in foreign currency
up to date