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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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Match each statement with the correct term.
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1. What are the types of Exchange Rate Fluctuations?
Interest rates and money supply
State driven recapitalization are now needed
Monetary and fiscal policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages

2. What are the two ways to quote currency?
Spot rates and forward rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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)

3. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

4. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

5. What is hedging?

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6. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Impact of currency exchange rate changes on reported financial statements

7. What is the second role of the U.S. dollar outside the U.S. ?
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
Intervention currency (peg country currency)
Forward exchange or spot exchange
Exchange rate policies

8. What is a currency swamp?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
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

9. The euro faces risks fo recapitalization?
Investor psychology
Impact of currency exchange rate changes on reported financial statements
Lending of funds in foreign currencies
Banks stability was measure at a 5% capital adequacy ratio

10. What is the law of one price?
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
Productivity and balance payments
Group of investors movement in the same direction and same time or government intervention
Affected by fluctuation in foreign exchange values

11. 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
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Relative price differences and ppp

12. What is the fourth characteristic of transaction exposure?
Transaction - translation and economic exposure
Obligations for the purchase or sale of goods and services at previously agreed prices
Lending of funds in foreign currencies
An attempt to collect currency receivables early as result of expected depreciation

13. According to economic theories of exchage rate determination?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies
1. distribute productive assets 2. ensure assets are not concentrated in countries

14. What is a forward rate?
Monetary and fiscal policies
Forward exchange or spot exchange
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Transaction - translation and economic exposure

15. What is the second characteristic of transaction exposure?
True
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

16. 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
Delay payables if currency is expected to depreciate
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
domino effect

17. What is the fourth roles of the U.S. dollar outside the U.S.?
Establish central control and attempts to forecast future exchange rates
Vehicle currency(transaction between 2 less commonly used currencies)
Forward exchange or spot exchange
An attempt to collect currency receivables early as result of expected depreciation

18. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Productivity and balance payments
Exchange rate policies
True

19. It is important to stay __________ with your current events
Interest rates and money supply
Spot rates and forward rates
up to date
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

20. 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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Paying foreign currency payable before dues as a result expected currency appreciation

21. What is the third characteristic of transaction exposure?
24/7
Currency of one country can be exchanged for the currency of another country
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Borrowing of funds in foreign currency

22. What holds true to Purchase Power Parity Theory?
Borrowing of funds in foreign currency
Monetary and fiscal 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
Banks stability was measure at a 5% capital adequacy ratio

23. What are some characteristics of swaps?
Inflation - interest rate - and market psychology
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
Monetary and fiscal 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

24. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The income form individual transacations
Increase currency values and protect against increases in foreign prices of goods and services

25. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
up to date
1. distribute productive assets 2. ensure assets are not concentrated in countries
The income form individual transacations

26. What are the first two things that determine Forex rates?
Relative price differences and ppp
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
True
Interest rates and money supply

27. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
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.
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

28. Most Transaction inovolve...
u.s. dollar
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Inflation - interest rate - and market psychology
Issue mo good loans so that profits from new business can eat away the losses form the bad

29. What is the fifth thing that determines the forex rates?
Investor psychology
Affected by fluctuation in foreign exchange values
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

30. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Banks stability was measure at a 5% capital adequacy ratio
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

31. What is the nature of the forex 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
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

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

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33. How and What is the purpose of distributing assets?
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by fluctuation in foreign exchange values
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)

34. What are three factors that impact a country's future exchange rate movements?
Group of investors movement in the same direction and same time or government intervention
Inflation - interest rate - and market psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transaction - translation and economic exposure

35. 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.
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Intervention currency (peg country currency)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

36. Marekts are open...
Measurement of past events
u.s. dollar
24/7
Borrowing of funds in foreign currency

37. What is the characteristic of translation expose?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Measurement of past events
Exchange rates are determined by the demand and supply for different currencies
Spot rates and forward rates

38. What are the two ways to reduce economic exposure?
The income form individual transacations
Obligations for the purchase or sale of goods and services at previously agreed prices
1. distribute productive assets 2. ensure assets are not concentrated in countries
Lending of funds in foreign currencies

39. What is the bandwagon effect when looking at 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
True
Group of investors movement in the same direction and same time or government intervention
Paying foreign currency payable before dues as a result expected currency appreciation

40. What are other strategies for managing forex risk?
Paying foreign currency payable before dues as a result expected currency appreciation
True
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

41. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Affected by fluctuation in foreign exchange values
Issue mo good loans so that profits from new business can eat away the losses form the bad
u.s. dollar

42. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Delay collection of foreign currency receivables if currency is exception to appreciate
True
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. protect resources efficiently 2. ensure correct mix of tactics and strategies

43. No single theory can explain explain the causes the value of currencies to change. True or False?
Relative price differences and ppp
Transaction - translation and economic exposure
True
Currency of one country can be exchanged for the currency of another country

44. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Collecting & spending of money by the government
Banks stability was measure at a 5% capital adequacy ratio
True

45. What is the second thing that determines the Forex rates?
Interest rates and money supply
Banks stability was measure at a 5% capital adequacy ratio
Affected by fluctuation in foreign exchange values
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

46. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
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
Increase currency values and protect against increases in foreign prices of goods and services
Transaction - translation and economic exposure

47. When do countries use foreign exchange market?
Collecting & spending of money by the government
Inflation - interest rate - and market psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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

48. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies
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
Collecting & spending of money by the government

49. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Impact of currency exchange rate changes on reported financial statements
Collecting & spending of money by the government
24/7
State driven recapitalization are now needed

50. What is the third thing that determines the forex rates?
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries
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

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Foreign Exchange Market

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