Test your basic knowledge |

Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

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 the nominal exchange rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Currency of one country can be exchanged for the currency of another country
Investor psychology
Control the amount of money in circulation - enforced by government policies - focus on growth rate

2. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Spot rates - forward rates - and swaps
Collecting & spending of money by the government
Measurement of past events

3. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Collecting & spending of money by the government
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Productivity and balance payments

4. What are the three different types of foreign exchange rate risks?
domino effect
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

5. Defaulting on debt has a __________ that intertwines all countries in Europe.
Increase currency values and protect against increases in foreign prices of goods and services
Obligations for the purchase or sale of goods and services at previously agreed prices
domino effect
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

6. What is the nature of the forex market?
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
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

7. 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
Exchange rate policies
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values

8. How do you insure or hedge against a Forex risk?
Delay payables if currency is expected to depreciate
Forward exchange or spot exchange
Spot rates and forward rates
London - New York - Tokyo - and Singapore

9. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Measurement of past events
Spot rates - forward rates - and swaps

10. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Banks stability was measure at a 5% capital adequacy ratio
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Paying foreign currency payable before dues as a result expected currency appreciation

11. What are some strategies for managing forex risk?
Lead and lag strategies
Establish central control and attempts to forecast future exchange rates
Issue mo good loans so that profits from new business can eat away the losses form the bad
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

12. What is the purpose of not concentrating assets in countries?
Investor psychology
Increase currency values and protect against increases in foreign prices of goods and services
Productivity and balance payments
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

13. What is hedging?

14. What do monetary policies do?
Establish central control and attempts to forecast future exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

15. 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
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

16. What is economic exposure?
Firms future international earning power
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
Interest rates and money supply
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

17. How and What is the purpose of distributing assets?
Obligations for the purchase or sale of goods and services at previously agreed prices
Vehicle currency(transaction between 2 less commonly used currencies)
Impact of currency exchange rate changes on reported financial statements
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

18. What is the second issue with EFSF?
Investor psychology
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
Vehicle currency(transaction between 2 less commonly used currencies)

19. When do countries use the foreign exchange market?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Productivity and balance payments
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

20. The euro faces risks fo recapitalization?
Reserve currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Banks stability was measure at a 5% capital adequacy ratio
Spot rates - forward rates - and swaps

21. When do countries use foreign exchange market?
Relative price differences and ppp
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Paying foreign currency payable before dues as a result expected currency appreciation
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

22. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Interest rates and money supply
Currency of one country can be exchanged for the currency of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad

23. What is the fourth characteristic of transaction exposure?
The income form individual transacations
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
Delay payables if currency is expected to depreciate

24. What is the fourth roles of the U.S. dollar outside the U.S.?
Borrowing of funds in foreign currency
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

25. What is arbitrage?
Lead and lag strategies
Investor psychology
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
The income form individual transacations

26. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
agreed upon austerity
Forward exchange or spot exchange
Increase currency values and protect against increases in foreign prices of goods and services

27. Burger economics!!! Why do we use it?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
24/7
Delay payables if currency is expected to depreciate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

28. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Measurement of past events
Lead and lag strategies
Transaction - translation and economic exposure

29. What is the first characteristic of lag strategy?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Delay collection of foreign currency receivables if currency is exception to appreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

30. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Interest rates and money supply
Exchange rate policies
Firms future international earning power

31. What is the third role of the U.S. dollar outside the U.S.?
Borrowing of funds in foreign currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
agreed upon austerity
Reserve currency

32. What are the characteristics of economic exposure?
Establish central control and attempts to forecast future exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Obligations for the purchase or sale of goods and services at previously agreed prices
Lending of funds in foreign currencies

33. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
u.s. dollar
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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

34. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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
Borrowing of funds in foreign currency
Exchange rate policies

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

36. What is a currency swamp?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
u.s. dollar
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Intervention currency (peg country currency)

37. What is the second characteristic of lead strategy?
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Investor psychology

38. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
True
Issue mo good loans so that profits from new business can eat away the losses form the bad
Transaction - translation and economic exposure
Inflation - interest rate - and market psychology

39. What is the second characteristic of transaction 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
Obligations for the purchase or sale of goods and services at previously agreed prices
Monetary and fiscal policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate

40. What is free convertible currency?
Increase currency values and protect against increases in foreign prices of goods and services
Firms future international earning power
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
domino effect

41. What are the two ways to quote currency?
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 changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates and forward rates

42. What are some characteristics of swaps?
Firms future international earning power
Interest rates and money supply
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

43. What is the third characteristic of transaction 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
Reserve currency
u.s. dollar
Borrowing of funds in foreign currency

44. What is the first characteristic of transaction exposure ?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values
Relative price differences and ppp
agreed upon austerity

45. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Delay collection of foreign currency receivables if currency is exception to appreciate
Relative price differences and ppp
Borrowing of funds in foreign currency

46. It is important to stay __________ with your current events
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

47. What is the fifth thing that determines the forex rates?
Investor psychology
Impact of currency exchange rate changes on reported financial statements
Inflation - interest rate - and market psychology
Intervention currency (peg country currency)

48. What is the first issue with EFSF?
Impact of currency exchange rate changes on reported financial statements
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
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

49. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
State driven recapitalization are now needed
Collecting & spending of money by the government
Intervention currency (peg country currency)

50. Most Transaction inovolve...
u.s. dollar
Intervention currency (peg country currency)
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Reserve currency