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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. What causes big mac prices to vary?
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 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

2. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used 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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

3. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
domino effect
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

4. What is the second characteristic of lead strategy?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Exchange rates are determined by the demand and supply for different currencies
Paying foreign currency payable before dues as a result expected currency appreciation

5. What is capital fight when looking at it form investor psychology?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Productivity and balance payments
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

6. What is the law of one price?
up to date
Monetary and fiscal policies
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
Investor psychology

7. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Delay collection of foreign currency receivables if currency is exception to appreciate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
State driven recapitalization are now needed
u.s. dollar

8. What is the nature of the forex market?
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
up to date
State driven recapitalization are now needed

9. What is the first roels of the U.S. dollar outside the U.S.?
domino effect
Lending of funds in foreign currencies
Forward exchange or spot exchange
A common reference

10. What holds true to Purchase Power Parity Theory?
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. distribute productive assets 2. ensure assets are not concentrated in countries
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; delivery within two days (conversion on a particular day)

11. How do you establish central control?
Establish central control and attempts to forecast future exchange 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
Impact of currency exchange rate changes on reported financial statements
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

12. What are other strategies for managing forex risk?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

13. According to economic theories of exchage rate determination?
Intervention currency (peg country currency)
Exchange rates are determined by the demand and supply for different currencies
Delay payables if currency is expected to depreciate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

14. Most Transaction inovolve...
Firms future international earning power
Affected by fluctuation in foreign exchange values
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
u.s. dollar

15. What is the third 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
agreed upon austerity
Exchange rates are determined by the demand and supply for different currencies
Reserve currency

16. What are the characteristics of economic exposure?
Borrowing of funds in foreign currency
Affected by fluctuation in foreign exchange values
State driven recapitalization are now needed
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

17. No single theory can explain explain the causes the value of currencies to change. True or False?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
True
domino effect
Exchange rate policies

18. What is the second characteristic of lag strategy?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Delay payables if currency is expected to depreciate
Transaction - translation and economic exposure
agreed upon austerity

19. What are the first two things that determine Forex rates?
Relative price differences and ppp
Reserve currency
Measurement of past events
Collecting & spending of money by the government

20. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rates are determined by the demand and supply for different currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Collecting & spending of money by the government

21. What are some factors that influence exchange rates?
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Impact of currency exchange rate changes on reported financial statements

22. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Goods and services of one country can be exchanged for the goods and services of another country
It helps them understand the influence of exchange rates on profitability of trade investment deals
Exchange rates are determined by the demand and supply for different currencies

23. How can transaction exposure be described?
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The income form individual transacations
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

24. What are the two ways to quote currency?
Spot rates and forward rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in 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
The income form individual transacations

25. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Paying foreign currency payable before dues as a result expected currency appreciation
Increase currency values and protect against increases in foreign prices of goods and services
True

26. 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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

27. It is important to stay __________ with your current events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
u.s. dollar
Intervention currency (peg country currency)
up to date

28. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Paying foreign currency payable before dues as a result expected currency appreciation
up to date
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

29. The euro faces risks fo recapitalization?
True
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
Banks stability was measure at a 5% capital adequacy ratio
Borrowing of funds in foreign currency

30. When do countries use foreign exchange market?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Monetary and fiscal policies
Productivity and balance payments

31. Defaulting on debt has a __________ that intertwines all countries in Europe.
Transaction - translation and economic exposure
domino effect
Exchange rate policies
Impact of currency exchange rate changes on reported financial statements

32. What is the bandwagon effect when looking at form 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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Group of investors movement in the same direction and same time or government intervention
The income form individual transacations

33. What are three factors that impact a country's future exchange rate movements?
24/7
Obligations for the purchase or sale of goods and services at previously agreed prices
Inflation - interest rate - and market psychology
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

34. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Borrowing of funds in foreign currency
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

35. What is the third thing that determines the forex rates?
Interest rates and money supply
Productivity and balance payments
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Lending of funds in foreign currencies

36. What is externally convertible currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply

37. What is economic exposure?
Increase their exposure to banking -'s banking center
Collecting & spending of money by the government
Firms future international earning power
Productivity and balance payments

38. What are some strategies for managing forex risk?
Lending of funds in foreign currencies
Productivity and balance payments
True
Establish central control and attempts to forecast future exchange rates

39. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
An attempt to collect currency receivables early as result of expected depreciation
Increase their exposure to banking -'s banking center
Exchange rates are determined by the demand and supply for different currencies

40. 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
Spot rates and forward 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

41. What is a forward rate?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Increase currency values and protect against increases in foreign prices of goods and services
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

42. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
A common reference
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

43. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values

44. What are the purposes of fiscal policies?
Collecting & spending of money by the government
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
Forward exchange or spot exchange
It helps them understand the influence of exchange rates on profitability of trade investment deals

45. What are the three different types of foreign exchange rate risks?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
True
Transaction - translation and economic exposure
up to date

46. What are some characteristics of swaps?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Lending of funds in foreign currencies
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
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

47. What is hedging?

48. What is the first characteristic of lag strategy?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase their exposure to banking -'s banking center
State driven recapitalization are now needed

49. What are the three ways of insuring against a Forex risk?
Impact of currency exchange rate changes on reported financial statements
Firms future international earning power
Spot rates - forward rates - and swaps
Inflation - interest rate - and market psychology

50. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
True
Vehicle currency(transaction between 2 less commonly used currencies)
It helps them understand the influence of exchange rates on profitability of trade investment deals