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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 are two methods of reducing translation and transaction exposure?
Reserve currency
Lead and lag strategies
Lending of funds in foreign currencies
State driven recapitalization are now needed

2. According to economic theories of exchage rate determination?
State driven recapitalization are now needed
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
Spot rates - forward rates - and swaps

3. What is the second role of the U.S. dollar outside the U.S. ?
True
Inflation - interest rate - and market psychology
Obligations for the purchase or sale of goods and services at previously agreed prices
Intervention currency (peg country currency)

4. What are some characteristics of swaps?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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
24/7
State driven recapitalization are now needed

5. How can translation exposure be described?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
agreed upon austerity
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements

6. What holds true to Purchase Power Parity Theory?
Vehicle currency(transaction between 2 less commonly used 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
u.s. dollar
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

7. What is the second characteristic of transaction exposure?
Transaction - translation and economic exposure
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

8. It is important to stay __________ with your current events
domino effect
up to date
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates - forward rates - and swaps

9. What is arbitrage?
Vehicle currency(transaction between 2 less commonly used currencies)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Reserve currency

10. What is the nominal exchange rate?
Collecting & spending of money by the government
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Currency of one country can be exchanged for the currency of another country
Firms future international earning power

11. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Interest rates and money supply
Monetary and fiscal policies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

12. What are some strategies for managing forex risk?
Lead and lag strategies
Establish central control and attempts to forecast future exchange rates
Obligations for the purchase or sale of goods and services at previously agreed prices
agreed upon austerity

13. Marekts are open...
Banks stability was measure at a 5% capital adequacy ratio
24/7
An attempt to collect currency receivables early as result of expected depreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

14. 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
Spot rates - forward rates - and swaps
Currency of one country can be exchanged for the currency of another country
Large number of individuals and cos exchange of domestic currencies for a foreign currency

15. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Exchange rate policies
Lead and lag strategies

16. What is externally convertible currency
domino effect
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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)

17. What is the third role of the U.S. dollar outside the U.S.?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Reserve currency

18. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Collecting & spending of money by the government
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
True

19. What is the first characteristic of transaction exposure ?
u.s. dollar
Affected by fluctuation in foreign exchange values
It helps them understand the influence of exchange rates on profitability of trade investment deals
Measurement of past events

20. What is the second thing that determines the Forex rates?
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
Inflation - interest rate - and market psychology
Currency of one country can be exchanged for the currency of another country
Interest rates and money supply

21. What is the fourth characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Lending of funds in foreign currencies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

22. What are the important trading centers?
Exchange rate policies
London - New York - Tokyo - and Singapore
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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

23. What is the first roels of the U.S. dollar outside the U.S.?
Lending of funds in foreign currencies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
A common reference
True

24. What is the first characteristic of lead strategy?
Lending of funds in foreign currencies
An attempt to collect currency receivables early as result of expected depreciation
Borrowing of funds in foreign currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

25. What are the two ways to quote currency?
Paying foreign currency payable before dues as a result expected currency appreciation
True
Spot rates and forward rates
Delay payables if currency is expected to depreciate

26. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Currency of one country can be exchanged for the currency of another country
Banks stability was measure at a 5% capital adequacy ratio

27. No single theory can explain explain the causes the value of currencies to change. True or False?
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
True
Delay collection of foreign currency receivables if currency is exception to appreciate

28. What is the nature of the forex market?
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 - forward rates - and swaps
London - New York - Tokyo - and Singapore
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

29. What is the fourth thing that determines the forex rates?
Exchange rate policies
Banks stability was measure at a 5% capital adequacy ratio
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
up to date

30. How do you insure or hedge against a Forex risk?
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
u.s. dollar
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Forward exchange or spot exchange

31. What is a forward rate?
Vehicle currency(transaction between 2 less commonly used currencies)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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

32. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
An attempt to collect currency receivables early as result of expected depreciation

33. What is the bandwagon effect when looking at form investor psychology ?
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
Group of investors movement in the same direction and same time or government intervention
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

34. What implications does understanding foreign exchange rates have on managers?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase currency values and protect against increases in foreign prices of goods and services

35. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Exchange rate policies
Lead and lag strategies
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

36. How do you establish central control?
Measurement of past events
Currency of one country can be exchanged for the currency of another country
Forward exchange or spot exchange
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

37. When do countries use the foreign exchange market?
Delay payables if currency is expected to depreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Goods and services of one country can be exchanged for the goods and services of another country
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

38. How and What is the purpose of distributing assets?
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)
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
Banks stability was measure at a 5% capital adequacy ratio

39. What is the fifth thing that determines the forex rates?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Investor psychology
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
Delay collection of foreign currency receivables if currency is exception to appreciate

40. What is economic exposure?
Firms future international earning power
Obligations for the purchase or sale of goods and services at previously agreed prices
agreed upon austerity
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

41. Defaulting on debt has a __________ that intertwines all countries in Europe.
Reserve currency
Currency of one country can be exchanged for the currency of another country
Exchange rate policies
domino effect

42. What is the characteristic of translation expose?
Inflation - interest rate - and market psychology
True
Measurement of past events
Delay collection of foreign currency receivables if currency is exception to appreciate

43. When do countries use foreign exchange market?
Lending of funds in foreign currencies
Goods and services of one country can be exchanged for the goods and services of another country
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

44. The euro faces risks fo recapitalization?
Relative price differences and ppp
London - New York - Tokyo - and Singapore
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Banks stability was measure at a 5% capital adequacy ratio

45. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
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
Relative price differences and ppp

46. What is the second characteristic of lead strategy?
Vehicle currency(transaction between 2 less commonly used currencies)
Monetary and fiscal policies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Paying foreign currency payable before dues as a result expected currency appreciation

47. How can transaction exposure be described?
The income form individual transacations
Delay payables if currency is expected to depreciate
Measurement of past events
A common reference

48. What is the second issue with EFSF?
State driven recapitalization are now needed
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
Establish central control and attempts to forecast future exchange rates
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

49. Most Transaction inovolve...
u.s. dollar
Delay collection of foreign currency receivables if currency is exception to appreciate
It helps them understand the influence of exchange rates on profitability of trade investment deals
Exchange rate policies

50. What is the third characteristic of transaction exposure?
Monetary and fiscal policies
Interest rates and money supply
domino effect
Borrowing of funds in foreign currency