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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 fourth roles of the U.S. dollar outside the U.S.?
u.s. dollar
Paying foreign currency payable before dues as a result expected currency appreciation
domino effect
Vehicle currency(transaction between 2 less commonly used currencies)

2. No single theory can explain explain the causes the value of currencies to change. True or False?
Impact of currency exchange rate changes on reported financial statements
Delay collection of foreign currency receivables if currency is exception to appreciate
True
Lending of funds in foreign currencies

3. When do countries use foreign exchange market?
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
agreed upon austerity
Increase currency values and protect against increases in foreign prices of goods and services
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

4. What is the third role of the U.S. dollar outside the U.S.?
Currency of one country can be exchanged for the currency of another country
Spot rates and forward rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Reserve currency

5. What are three factors that impact a country's future exchange rate movements?
domino effect
Currency of one country can be exchanged for the currency of another country
Inflation - interest rate - and market psychology
Banks stability was measure at a 5% capital adequacy ratio

6. How do you establish central control?
domino effect
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
24/7
Monetary and fiscal policies

7. What is arbitrage?
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Increase currency values and protect against increases in foreign prices of goods and services

8. What is the second characteristic of transaction exposure?
Impact of currency exchange rate changes on reported financial statements
domino effect
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Obligations for the purchase or sale of goods and services at previously agreed prices

9. What is the first issue with EFSF?
Establish central control and attempts to forecast future exchange rates
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
A common reference

10. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference
Intervention currency (peg country currency)

11. What is a forward rate?
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
Spot rates and forward rates
u.s. dollar

12. What is the characteristic of translation expose?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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 income form individual transacations
Measurement of past events

13. What is the second characteristic of lag strategy?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Monetary and fiscal policies
Delay payables if currency is expected to depreciate
Establish central control and attempts to forecast future exchange rates

14. What are some factors that influence exchange rates?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Increase their exposure to banking -'s banking center
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

15. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Relative price differences and ppp
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

16. What do monetary policies do?
up to date
Forward exchange or spot exchange
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

17. What implications does understanding foreign exchange rates have on managers?
Spot rates and forward rates
Group of investors movement in the same direction and same time or government intervention
State driven recapitalization are now needed
It helps them understand the influence of exchange rates on profitability of trade investment deals

18. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Banks stability was measure at a 5% capital adequacy ratio
State driven recapitalization are now needed
Goods and services of one country can be exchanged for the goods and services of another country
Delay collection of foreign currency receivables if currency is exception to appreciate

19. What is non convertible currency?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Group of investors movement in the same direction and same time or government intervention
Affected by fluctuation in foreign exchange values

20. How do you insure or hedge against a Forex risk?
domino effect
Forward exchange or spot exchange
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages

21. What is the fourth characteristic of transaction exposure?
u.s. dollar
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
Establish central control and attempts to forecast future exchange rates
Lending of funds in foreign currencies

22. Greece has not defaulted because it has not been able to fully implement its...
24/7
agreed upon austerity
Spot rates and forward rates
Collecting & spending of money by the government

23. What is the second thing that determines the Forex rates?
Interest rates and money supply
Delay collection of foreign currency receivables if currency is exception to appreciate
1. distribute productive assets 2. ensure assets are not concentrated in countries
Lending of funds in foreign currencies

24. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
The income form individual transacations
Group of investors movement in the same direction and same time or government intervention
It helps them understand the influence of exchange rates on profitability of trade investment deals

25. What are some characteristics of swaps?
Impact of currency exchange rate changes on reported financial statements
Exchange rate policies
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

26. Most Transaction inovolve...
u.s. dollar
domino effect
Delay collection of foreign currency receivables if currency is exception to appreciate
Vehicle currency(transaction between 2 less commonly used currencies)

27. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
Currency of one country can be exchanged for the currency of another country
Interest rates and money supply
1. distribute productive assets 2. ensure assets are not concentrated in countries

28. What are the first two things that determine Forex rates?
Productivity and balance payments
A common reference
Relative price differences and ppp
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

29. Burger economics!!! Why do we use it?
Monetary and fiscal policies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

30. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Intervention currency (peg country currency)
Paying foreign currency payable before dues as a result expected currency appreciation
Issue mo good loans so that profits from new business can eat away the losses form the bad

31. What is the third thing that determines the forex rates?
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
Impact of currency exchange rate changes on reported financial statements
Productivity and balance payments

32. What is the second role of the U.S. dollar outside the U.S. ?
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. distribute productive assets 2. ensure assets are not concentrated in countries
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

33. What is hedging?

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34. What is free convertible currency?
Paying foreign currency payable before dues as a result expected currency appreciation
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Reserve currency

35. What are the two ways to quote 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
Impact of currency exchange rate changes on reported financial statements
Spot rates and forward rates
Banks stability was measure at a 5% capital adequacy ratio

36. What is the second characteristic of lead strategy?
Collecting & spending of money by the government
Increase their exposure to banking -'s banking center
Establish central control and attempts to forecast future exchange rates
Paying foreign currency payable before dues as a result expected currency appreciation

37. What is a currency swamp?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Affected by fluctuation in foreign exchange values
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

38. What is the law of one price?
u.s. dollar
Forward exchange or spot exchange
domino effect
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

39. What is the first characteristic of lead strategy?
up to date
Firms future international earning power
True
An attempt to collect currency receivables early as result of expected depreciation

40. What is a spot rate?
Paying foreign currency payable before dues as a result expected currency appreciation
24/7
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Firms future international earning power

41. What is the real exchange rate?
The income form individual transacations
Borrowing of funds in foreign currency
Goods and services of one country can be exchanged for the goods and services of another country
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

42. How and What is the purpose of distributing assets?
Vehicle currency(transaction between 2 less commonly used currencies)
Increase currency values and protect against increases in foreign prices of goods and services
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

43. It is important to stay __________ with your current events
Spot rates - forward rates - and swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
up to date

44. What are other strategies for managing forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Lending of funds in foreign currencies
True
Spot rates - forward rates - and swaps

45. How can transaction exposure be described?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies
Intervention currency (peg country currency)

46. Bailout Fund of EFSF - What is this shiz nitz?
Vehicle currency(transaction between 2 less commonly used currencies)
Paying foreign currency payable before dues as a result expected currency appreciation
Currency of one country can be exchanged for the currency of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

47. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Borrowing of funds in foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

48. What are some strategies for managing forex risk?
Interest rates and money supply
u.s. dollar
Establish central control and attempts to forecast future exchange rates
True

49. What are the important trading centers?
Firms future international earning power
Lending of funds in foreign currencies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
London - New York - Tokyo - and Singapore

50. What are the characteristics of economic exposure?
Currency of one country can be exchanged for the currency 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
Vehicle currency(transaction between 2 less commonly used currencies)
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

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Foreign Exchange Market

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