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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.
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. Bailout Fund of EFSF - What is this shiz nitz?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Borrowing of funds in foreign currency
An attempt to collect currency receivables early as result of expected depreciation

2. What is the second characteristic of lag strategy?
Measurement of past events
1. distribute productive assets 2. ensure assets are not concentrated in countries
Delay payables if currency is expected to depreciate
up to date

3. What is the second thing that determines the Forex rates?
Collecting & spending of money by the government
Interest rates and money supply
Control the amount of money in circulation - enforced by government policies - focus on growth rate
London - New York - Tokyo - and Singapore

4. What is the first issue with EFSF?
24/7
Collecting & spending of money by the government
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
Interest rates and money supply

5. What is the purpose of not concentrating assets in countries?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

6. What is the third role of the U.S. dollar outside the U.S.?
Lending of funds in foreign currencies
Reserve currency
Transaction - translation and economic 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

7. What do monetary policies do?
u.s. dollar
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay payables if currency is expected to depreciate
Forward exchange or spot exchange

8. Marekts are open...
24/7
up to date
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

9. What is the second role of the U.S. dollar outside the U.S. ?
True
up to date
24/7
Intervention currency (peg country currency)

10. What is free convertible currency?
Intervention currency (peg country currency)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Vehicle currency(transaction between 2 less commonly used currencies)

11. What is the fourth roles of the U.S. dollar outside the U.S.?
Delay collection of foreign currency receivables if currency is exception to appreciate
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)
Interest rates and money supply

12. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
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

13. What is the first characteristic of lead strategy?
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
True
An attempt to collect currency receivables early as result of expected depreciation
A common reference

14. How can transaction exposure be described?
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
The income form individual transacations
Reserve currency
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

15. 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
agreed upon austerity
The income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages

16. What are some strategies for managing forex risk?
London - New York - Tokyo - and Singapore
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Establish central control and attempts to forecast future exchange rates

17. What is the law of one price?
Lead and lag 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
agreed upon austerity
Transportation costs - trade barriers - and not trade inputs such as rents or wages

18. When do countries use the foreign exchange market?
Currency of one country can be exchanged for the currency 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.
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

19. What is the second issue with EFSF?
True
Vehicle currency(transaction between 2 less commonly used currencies)
The income form individual transacations
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

20. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
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
Spot rates and forward rates
agreed upon austerity

21. What is a spot rate?
Reserve currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
A common reference
Impact of currency exchange rate changes on reported financial statements

22. No single theory can explain explain the causes the value of currencies to change. True or False?
Productivity and balance payments
True
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 process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

23. What are two methods of reducing translation and transaction exposure?
Banks stability was measure at a 5% capital adequacy ratio
Lead and lag strategies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

24. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
agreed upon austerity
Exchange rate policies
up to date
State driven recapitalization are now needed

25. What are the two ways to reduce economic exposure?
Reserve currency
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries
Forward exchange or spot exchange

26. When do countries use foreign exchange market?
True
Impact of currency exchange rate changes on reported financial statements
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
Spot rates - forward rates - and swaps

27. What are three factors that impact a country's future exchange rate movements?
Spot rates - forward rates - and swaps
Inflation - interest rate - and market psychology
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

28. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Lending of funds in foreign currencies
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)
Issue mo good loans so that profits from new business can eat away the losses form the bad

29. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Borrowing of funds in foreign currency
Reserve currency

30. 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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. distribute productive assets 2. ensure assets are not concentrated in countries

31. What are the first two things that determine Forex rates?
Transaction - translation and economic exposure
Productivity and balance payments
Relative price differences and ppp
A common reference

32. What are the characteristics of economic exposure?
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
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
Investor psychology

33. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Group of investors movement in the same direction and same time or government intervention
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency

34. 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.
domino effect
Investor psychology
Impact of currency exchange rate changes on reported financial statements

35. What is arbitrage?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Impact of currency exchange rate changes on reported financial statements
Exchange rates are determined by the demand and supply for different currencies

36. What implications does understanding foreign exchange rates have on managers?
Paying foreign currency payable before dues as a result expected currency appreciation
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
It helps them understand the influence of exchange rates on profitability of trade investment deals

37. How do you establish central control?
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; delivery within two days (conversion on a particular day)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

38. How do you insure or hedge against a Forex risk?
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
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
up to date

39. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
up to date
Exchange rates are determined by the demand and supply for different currencies
True

40. What are the purposes of fiscal policies?
24/7
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Establish central control and attempts to forecast future exchange rates
Collecting & spending of money by the government

41. What is the fourth characteristic of transaction exposure?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Increase currency values and protect against increases in foreign prices of goods and services
Lending of funds in foreign currencies
Measurement of past events

42. What is capital fight when looking at it form investor psychology?
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

43. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

44. What is economic exposure?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power
Measurement of past events
Paying foreign currency payable before dues as a result expected currency appreciation

45. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

46. It is important to stay __________ with your current events
1. distribute productive assets 2. ensure assets are not concentrated in countries
up to date
A common reference
Goods and services of one country can be exchanged for the goods and services of another country

47. 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
Exchange rates are determined by the demand and supply for different currencies
Productivity and balance payments
Establish central control and attempts to forecast future exchange rates

48. The euro faces risks fo recapitalization?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Reserve currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Banks stability was measure at a 5% capital adequacy ratio

49. What is externally convertible currency
London - New York - Tokyo - and Singapore
Obligations for the purchase or sale of goods and services at previously agreed prices
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Reserve currency

50. What is the nature of the forex market?
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
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
Monetary and fiscal policies
Paying foreign currency payable before dues as a result expected currency appreciation