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Foreign Exchange Market

Subjects : business-skills, industries

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Answer 50 questions in 15 minutes.
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1. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Productivity and balance payments
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It helps them understand the influence of exchange rates on profitability of trade investment deals

2. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Firms future international earning power
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

3. What are the important trading centers?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
London - New York - Tokyo - and Singapore

4. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Paying foreign currency payable before dues as a result expected currency appreciation
Borrowing of funds in foreign currency
True

5. What is capital fight when looking at it form investor psychology?
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
u.s. dollar
Large number of individuals and cos exchange of domestic currencies for a foreign currency

6. How do you establish central control?
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Interest rates and money supply

7. 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
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
Spot rates and forward rates
Establish central control and attempts to forecast future exchange rates

8. What is the first characteristic of transaction exposure ?
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by fluctuation in foreign exchange values
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

9. What are the two ways to quote currency?
Banks stability was measure at a 5% capital adequacy ratio
State driven recapitalization are now needed
Spot rates and forward rates
True

10. What is the third thing that determines the forex rates?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Obligations for the purchase or sale of goods and services at previously agreed prices
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Productivity and balance payments

11. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

12. What is the first issue with EFSF?
Exchange rates are determined by the demand and supply for different 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)
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

13. What is the nominal exchange rate?
Forward exchange or spot exchange
Currency of one country can be exchanged for the currency of another country
domino effect
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

14. What is the second thing that determines the Forex rates?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Investor psychology
Interest rates and money supply

15. 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
up to date
Spot rates and forward rates
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

16. What is the characteristic of translation expose?
Delay payables if currency is expected to depreciate
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events
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

17. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Investor psychology
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

18. What is the fourth thing that determines the forex rates?
Exchange rate policies
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

19. What are the three different types of foreign exchange rate risks?
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
Impact of currency exchange rate changes on reported financial statements
Transaction - translation and economic exposure
True

20. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transaction - translation and economic exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. distribute productive assets 2. ensure assets are not concentrated in countries

21. What are three factors that impact a country's future exchange rate movements?
Transaction - translation and economic exposure
24/7
Inflation - interest rate - and market psychology
Increase currency values and protect against increases in foreign prices of goods and services

22. What is the real exchange rate?
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay collection of foreign currency receivables if currency is exception to appreciate

23. What implications does understanding foreign exchange rates have on managers?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Delay payables if currency is expected to depreciate
Vehicle currency(transaction between 2 less commonly used currencies)

24. What are the first two things that determine Forex rates?
True
Interest rates and money supply
Borrowing of funds in foreign currency
Relative price differences and ppp

25. What is the bandwagon effect when looking at form investor psychology ?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Reserve currency
Group of investors movement in the same direction and same time or government intervention
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

26. What is the first characteristic of lead strategy?
The income form individual transacations
An attempt to collect currency receivables early as result of expected depreciation
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

27. 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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

28. What is a forward rate?
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Delay payables if currency is expected to depreciate
Lending of funds in foreign currencies

29. When do countries use the foreign exchange market?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Spot rates and forward rates
The income form individual transacations

30. How can transaction exposure be described?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
True
Obligations for the purchase or sale of goods and services at previously agreed prices
The income form individual transacations

31. No single theory can explain explain the causes the value of currencies to change. True or False?
Forward exchange or spot exchange
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
True
The income form individual transacations

32. What are other strategies for managing forex risk?
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Reserve currency
Exchange rate policies

33. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The income form individual transacations
Increase currency values and protect against increases in foreign prices of goods and services
1. distribute productive assets 2. ensure assets are not concentrated in countries

34. What is hedging?

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35. What is externally convertible currency
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

36. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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
Exchange rates are determined by the demand and supply for different currencies

37. What is the third characteristic of transaction exposure?
Increase their exposure to banking -'s banking center
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
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
Borrowing of funds in foreign currency

38. Most Transaction inovolve...
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
u.s. dollar
An attempt to collect currency receivables early as result of expected depreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

39. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
State driven recapitalization are now needed

40. How and What is the purpose of distributing assets?
Delay payables if currency is expected to depreciate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
u.s. dollar
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

41. Greece has not defaulted because it has not been able to fully implement its...
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
Impact of currency exchange rate changes on reported financial statements
State driven recapitalization are now needed

42. What is the third role of the U.S. dollar outside the U.S.?
Transaction - translation and economic exposure
Reserve currency
Forward exchange or spot exchange
London - New York - Tokyo - and Singapore

43. What is the first roels of the U.S. dollar outside the U.S.?
Forward exchange or spot exchange
A common reference
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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

44. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
Vehicle currency(transaction between 2 less commonly used currencies)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
State driven recapitalization are now needed

45. What is arbitrage?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
A common reference
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Vehicle currency(transaction between 2 less commonly used currencies)

46. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Reserve currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

47. What are the characteristics of economic exposure?
Forward exchange or spot exchange
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
Interest rates and money supply

48. Marekts are open...
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
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

49. What are some strategies for managing forex risk?
Spot rates - forward rates - and swaps
The income form individual transacations
Establish central control and attempts to forecast future exchange rates
Intervention currency (peg country currency)

50. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Spot rates - forward rates - and swaps
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

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Foreign Exchange Market

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