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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 the purpose of not concentrating assets in countries?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Increase currency values and protect against increases in foreign prices of goods and services
domino effect
It helps them understand the influence of exchange rates on profitability of trade investment deals

2. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Impact of currency exchange rate changes on reported financial statements
Forward exchange or spot exchange
Vehicle currency(transaction between 2 less commonly used currencies)

3. What are other strategies for managing forex risk?
State driven recapitalization are now needed
Group of investors movement in the same direction and same time or government intervention
Collecting & spending of money by the government
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

4. What is the first characteristic of transaction exposure ?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Affected by fluctuation in foreign exchange values
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
Establish central control and attempts to forecast future exchange rates

5. What is the second characteristic of lead strategy?
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
Spot rates - forward rates - and swaps
London - New York - Tokyo - and Singapore
Paying foreign currency payable before dues as a result expected currency appreciation

6. What are the three ways of insuring against a Forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Intervention currency (peg country currency)
u.s. dollar
Spot rates - forward rates - and swaps

7. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Collecting & spending of money by the government
24/7
A common reference

8. What are the two ways to quote currency?
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

9. It is important to stay __________ with your current events
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
up to date

10. What is the second characteristic of transaction exposure?
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Obligations for the purchase or sale of goods and services at previously agreed prices
Increase their exposure to banking -'s banking center

11. 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
Affected by fluctuation in foreign exchange values
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

12. 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
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
up to date

13. How do you insure or hedge against a Forex risk?
Intervention currency (peg country currency)
Forward exchange or spot exchange
Collecting & spending of money by the government
A common reference

14. What are the three different types of foreign exchange rate risks?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Transaction - translation and economic exposure
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates and forward rates

15. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Spot rates and forward rates
Issue mo good loans so that profits from new business can eat away the losses form the bad

16. 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
Firms future international earning power
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates and forward rates

17. What is the fourth 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.
Lending of funds in foreign currencies
Delay collection of foreign currency receivables if currency is exception to appreciate
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

18. What causes big mac prices to vary?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

19. What is the first characteristic of lead strategy?
A common reference
An attempt to collect currency receivables early as result of expected depreciation
Forward exchange or spot exchange
Affected by fluctuation in foreign exchange values

20. 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
Delay collection of foreign currency receivables if currency is exception to appreciate
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rate policies

21. What is the fourth thing that determines the forex rates?
Establish central control and attempts to forecast future exchange rates
Investor psychology
Exchange rates are determined by the demand and supply for different currencies
Exchange rate policies

22. What is economic exposure?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
domino effect
Firms future international earning power
It helps them understand the influence of exchange rates on profitability of trade investment deals

23. What are some factors that influence exchange rates?
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
agreed upon austerity

24. According to economic theories of exchage rate determination?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Establish central control and attempts to forecast future exchange rates
Exchange rates are determined by the demand and supply for different currencies
State driven recapitalization are now needed

25. When do countries use the foreign exchange market?
up to date
London - New York - Tokyo - and Singapore
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

26. What is the real exchange rate?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Goods and services of one country can be exchanged for the goods and services of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

27. Marekts are open...
up to date
24/7
Vehicle currency(transaction between 2 less commonly used currencies)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

28. What is the nominal exchange rate?
agreed upon austerity
An attempt to collect currency receivables early as result of expected depreciation
Goods and services of one country can be exchanged for the goods and services of another country
Currency of one country can be exchanged for the currency of another country

29. What is non convertible currency?
Borrowing of funds in foreign currency
Lending of funds in foreign currencies
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

30. How and What is the purpose of distributing assets?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Measurement of past events
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

31. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Increase currency values and protect against increases in foreign prices of goods and services
Lending of funds in foreign currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

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

33. What is the fourth roles of the U.S. dollar outside the U.S.?
State driven recapitalization are now needed
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

34. What are some characteristics of swaps?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

35. What are the first two things that determine Forex rates?
Relative price differences and ppp
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
Inflation - interest rate - and market psychology

36. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Increase their exposure to banking -'s banking center
True
Group of investors movement in the same direction and same time or government intervention

37. What is the fifth thing that determines the forex rates?
Exchange rate policies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Investor psychology
1. distribute productive assets 2. ensure assets are not concentrated in countries

38. What is the first roels of the U.S. dollar outside the U.S.?
Exchange rate policies
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
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

39. What are the important trading centers?
Impact of currency exchange rate changes on reported financial statements
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
Relative price differences and ppp
London - New York - Tokyo - and Singapore

40. What are three factors that impact a country's future exchange rate movements?
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
Affected by fluctuation in foreign exchange values
Lead and lag strategies
Inflation - interest rate - and market psychology

41. What is the second thing that determines the Forex rates?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply
Exchange rate policies

42. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Measurement of past events
True
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

43. What holds true to Purchase Power Parity Theory?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

44. What is the characteristic of translation expose?
A common reference
State driven recapitalization are now needed
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
Measurement of past events

45. What do monetary policies do?
Exchange rate policies
Forward exchange or spot exchange
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Control the amount of money in circulation - enforced by government policies - focus on growth rate

46. The euro faces risks fo recapitalization?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Exchange rates are determined by the demand and supply for different currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Banks stability was measure at a 5% capital adequacy ratio

47. What is the third characteristic of transaction exposure?
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
Paying foreign currency payable before dues as a result expected currency appreciation
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
Borrowing of funds in foreign currency

48. What are the purposes of 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
Relative price differences and ppp
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
Collecting & spending of money by the government

49. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. distribute productive assets 2. ensure assets are not concentrated in countries
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

50. What is a spot rate?
Productivity and balance payments
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Establish central control and attempts to forecast future exchange rates