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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 third thing that determines the forex rates?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
domino effect
Measurement of past events
Productivity and balance payments

2. What is the fourth 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
Lending of funds in foreign currencies
Productivity and balance payments
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

3. What is the law of one price?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
A common reference

4. What causes big mac prices to vary?
Relative price differences and ppp
Transportation costs - trade barriers - and not trade inputs such as rents or wages
A common reference
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

5. How and What is the purpose of distributing assets?
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
Measurement of past events
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

6. What implications does understanding foreign exchange rates have on managers?
Interest rates and money supply
Increase their exposure to banking -'s banking center
It helps them understand the influence of exchange rates on profitability of trade investment deals
Establish central control and attempts to forecast future exchange rates

7. What are three factors that impact a country's future exchange rate movements?
Forward exchange or spot exchange
Vehicle currency(transaction between 2 less commonly used currencies)
u.s. dollar
Inflation - interest rate - and market psychology

8. What is arbitrage?
A common reference
24/7
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Firms future international earning power

9. What is the second thing that determines the Forex rates?
Delay payables if currency is expected to depreciate
Interest rates and money supply
It helps them understand the influence of exchange rates on profitability of trade investment deals
Goods and services of one country can be exchanged for the goods and services of another country

10. What are the three ways of insuring against a Forex risk?
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
An attempt to collect currency receivables early as result of expected depreciation

11. When do countries use foreign exchange market?
Productivity and balance payments
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. 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
Lead and lag strategies

12. What is the second issue with EFSF?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Monetary and fiscal policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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

13. What are some strategies for managing forex risk?
Increase their exposure to banking -'s banking center
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Productivity and balance payments
Establish central control and attempts to forecast future exchange rates

14. What are the first two things that determine Forex rates?
Borrowing of funds in foreign currency
Lending of funds in foreign currencies
Spot rates - forward rates - and swaps
Relative price differences and ppp

15. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Increase their exposure to banking -'s banking center
u.s. dollar
Increase currency values and protect against increases in foreign prices of goods and services

16. What is the second characteristic of transaction exposure?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Spot rates and forward rates
Obligations for the purchase or sale of goods and services at previously agreed prices

17. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Increase their exposure to banking -'s banking center
Spot rates and forward rates
Obligations for the purchase or sale of goods and services at previously agreed prices

18. What is a spot rate?
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)
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 process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

19. What do monetary policies do?
An attempt to collect currency receivables early as result of expected depreciation
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

20. What is capital fight when looking at it form investor psychology?
The income form individual transacations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Reserve currency

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

22. What is the real exchange rate?
State driven recapitalization are now needed
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
Goods and services of one country can be exchanged for the goods and services of another country
Productivity and balance payments

23. What is the nature of the forex market?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Spot rates and forward rates

24. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Productivity and balance payments
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
Monetary and fiscal policies

25. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
24/7
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Monetary and fiscal policies

26. What is the first issue with EFSF?
Exchange rate policies
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
Firms future international earning power
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

27. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Interest rates and money supply
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
True
Control the amount of money in circulation - enforced by government policies - focus on growth rate

28. What is the first characteristic of transaction exposure ?
Monetary and fiscal policies
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values
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

29. The euro faces risks fo recapitalization?
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
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. 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
Banks stability was measure at a 5% capital adequacy ratio

30. Defaulting on debt has a __________ that intertwines all countries in Europe.
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Establish central control and attempts to forecast future exchange rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
domino effect

31. Bailout Fund of EFSF - What is this shiz nitz?
Relative price differences and ppp
True
Productivity and balance payments
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

32. What are the two ways to quote currency?
Exchange rates are determined by the demand and supply for different currencies
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 and forward rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

33. What is economic exposure?
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
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
Inflation - interest rate - and market psychology

34. What are the characteristics of economic exposure?
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

35. What are some characteristics of swaps?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
agreed upon austerity
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

36. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Firms future international earning power
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

37. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Goods and services of one country can be exchanged for the goods and services of another country
Exchange rates are determined by the demand and supply for different currencies
1. distribute productive assets 2. ensure assets are not concentrated in countries

38. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Exchange rates are determined by the demand and supply for different currencies
domino effect
Impact of currency exchange rate changes on reported financial statements

39. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
domino effect
True
Currency of one country can be exchanged for the currency of another country

40. How can transaction exposure be described?
Currency of one country can be exchanged for the currency of another country
The income form individual transacations
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Vehicle currency(transaction between 2 less commonly used currencies)

41. What is externally convertible currency
Group of investors movement in the same direction and same time or government intervention
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Relative price differences and ppp

42. What is a forward rate?
Firms future international earning power
Group of investors movement in the same direction and same time or government intervention
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

43. What is the fifth thing that determines the forex rates?
Goods and services of one country can be exchanged for the goods and services of another country
Investor psychology
1. distribute productive assets 2. ensure assets are not concentrated in countries
Measurement of past events

44. What is the first characteristic of lag strategy?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Delay collection of foreign currency receivables if currency is exception to appreciate
True

45. What is the fourth roles of the U.S. dollar outside the U.S.?
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
Impact of currency exchange rate changes on reported financial statements
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore

46. What is the second role of the U.S. dollar outside the U.S. ?
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
Intervention currency (peg country currency)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Issue mo good loans so that profits from new business can eat away the losses form the bad

47. Marekts are open...
Intervention currency (peg country currency)
24/7
Collecting & spending of money by the government
Exchange rates are determined by the demand and supply for different currencies

48. No single theory can explain explain the causes the value of currencies to change. True or False?
Monetary and fiscal policies
True
Affected by fluctuation in foreign exchange values
Collecting & spending of money by the government

49. What is the characteristic of translation expose?
Exchange rate policies
agreed upon austerity
Firms future international earning power
Measurement of past events

50. What holds true to Purchase Power Parity Theory?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
Increase their exposure to banking -'s banking center
Measurement of past events