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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 first two things that determine Forex rates?
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp
Collecting & spending of money by the government
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

2. How can transaction exposure be described?
up to date
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The income form individual transacations

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

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4. What is economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
An attempt to collect currency receivables early as result of expected depreciation
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Firms future international earning power

5. What are the important trading centers?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Group of investors movement in the same direction and same time or government intervention
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
London - New York - Tokyo - and Singapore

6. What is capital fight when looking at it form investor psychology?
domino effect
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Delay payables if currency is expected to depreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

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

8. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Impact of currency exchange rate changes on reported financial statements
True
Forward exchange or spot exchange
Inflation - interest rate - and market psychology

9. What are the characteristics of economic exposure?
The income form individual transacations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Measurement of past events
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

10. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Reserve currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transportation costs - trade barriers - and not trade inputs such as rents or wages

11. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Collecting & spending of money by the government
Inflation - interest rate - and market psychology
Impact of currency exchange rate changes on reported financial statements

12. What is the second characteristic of transaction exposure?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates - forward rates - and swaps
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

13. What is the real exchange rate?
Lead and lag strategies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Measurement of past events
Goods and services of one country can be exchanged for the goods and services of another country

14. Defaulting on debt has a __________ that intertwines all countries in Europe.
Increase their exposure to banking -'s banking center
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
domino effect

15. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
Inflation - interest rate - and market psychology
Monetary and fiscal policies

16. How and What is the purpose of distributing assets?
Collecting & spending of money by the government
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The income form individual transacations

17. What is the second issue with EFSF?
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
Increase their exposure to banking -'s banking center
Transportation costs - trade barriers - and not trade inputs such as rents or wages

18. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Relative price differences and ppp
Vehicle currency(transaction between 2 less commonly used currencies)

19. What is the second thing that determines the Forex rates?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Interest rates and money supply
Investor psychology
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

20. What are the types of Exchange Rate Fluctuations?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Monetary and fiscal policies
Borrowing of funds in 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

21. What is the fourth roles of the U.S. dollar outside the U.S.?
Goods and services of one country can be exchanged for the goods and services of another country
Borrowing of funds in foreign currency
True
Vehicle currency(transaction between 2 less commonly used currencies)

22. What are two methods of reducing translation and transaction exposure?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transaction - translation and economic exposure
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Lead and lag strategies

23. How can translation exposure be described?
Establish central control and attempts to forecast future exchange rates
Impact of currency exchange rate changes on reported financial statements
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The income form individual transacations

24. What holds true to Purchase Power Parity Theory?
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
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
Collecting & spending of money by the government

25. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Banks stability was measure at a 5% capital adequacy ratio
Transaction - translation and economic exposure
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

26. What is the first issue with EFSF?
Borrowing of funds in foreign currency
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Paying foreign currency payable before dues as a result expected currency appreciation

27. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Goods and services of one country can be exchanged for the goods and services of another country
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
State driven recapitalization are now needed
1. distribute productive assets 2. ensure assets are not concentrated in countries

28. What is the characteristic of translation expose?
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Measurement of past events
Spot rates and forward rates

29. What is arbitrage?
An attempt to collect currency receivables early as result of expected depreciation
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Lead and lag strategies

30. What is hedging?

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31. It is important to stay __________ with your current events
Spot rates and forward rates
Borrowing of funds in foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
up to date

32. Bailout Fund of EFSF - What is this shiz nitz?
Vehicle currency(transaction between 2 less commonly used 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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Monetary and fiscal policies

33. When do countries use the foreign exchange market?
domino effect
Relative price differences and ppp
Paying foreign currency payable before dues as a result expected currency appreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

34. Burger economics!!! Why do we use it?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
A common reference
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

35. What are the three ways of insuring against a Forex risk?
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates - forward rates - and swaps
Delay collection of foreign currency receivables if currency is exception to appreciate
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

36. What do monetary policies do?
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Banks stability was measure at a 5% capital adequacy ratio

37. According to economic theories of exchage rate determination?
Impact of currency exchange rate changes on reported financial statements
London - New York - Tokyo - and Singapore
Exchange rates are determined by the demand and supply for different currencies
State driven recapitalization are now needed

38. What is the bandwagon effect when looking at form investor psychology ?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transaction - translation and economic exposure
Increase currency values and protect against increases in foreign prices of goods and services
Group of investors movement in the same direction and same time or government intervention

39. What are some strategies for managing forex risk?
Intervention currency (peg country currency)
Establish central control and attempts to forecast future exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Collecting & spending of money by the government

40. What implications does understanding foreign exchange rates have on managers?
Delay payables if currency is expected to depreciate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
It helps them understand the influence of exchange rates on profitability of trade investment deals
True

41. What is the nature of the forex market?
Banks stability was measure at a 5% capital adequacy ratio
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
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

42. What is the second characteristic of lead strategy?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. distribute productive assets 2. ensure assets are not concentrated in countries
Paying foreign currency payable before dues as a result expected currency appreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

43. What are the two ways to reduce economic exposure?
Firms future international earning power
Impact of currency exchange rate changes on reported financial statements
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. distribute productive assets 2. ensure assets are not concentrated in countries

44. What is a spot rate?
Goods and services of one country can be exchanged for the goods and services of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Intervention currency (peg country currency)
up to date

45. What is externally convertible currency
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
agreed upon austerity
Establish central control and attempts to forecast future exchange rates

46. What is free convertible currency?
Paying foreign currency payable before dues as a result expected currency appreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Intervention currency (peg country currency)

47. What is a currency swamp?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Delay payables if currency is expected to depreciate
Investor psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

48. What is the fourth characteristic of transaction exposure?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Paying foreign currency payable before dues as a result expected currency appreciation
Lending of funds in foreign currencies

49. What is a forward rate?
up to date
Impact of currency exchange rate changes on reported financial statements
Measurement of past events
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

50. How do you establish central control?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Intervention currency (peg country currency)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

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Foreign Exchange Market

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