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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 holds true to Purchase Power Parity Theory?
Borrowing of funds in foreign currency
Transaction - translation and economic exposure
Spot rates - forward rates - and swaps
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

2. What implications does understanding foreign exchange rates have on managers?
Lending of funds in foreign currencies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
It helps them understand the influence of exchange rates on profitability of trade investment deals

3. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies
State driven recapitalization are now needed

4. What are some strategies for managing forex risk?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Establish central control and attempts to forecast future exchange rates
Goods and services of one country can be exchanged for the goods and services of another country
Affected by fluctuation in foreign exchange values

5. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
The income form individual transacations
True
Investor psychology

6. What is the nominal exchange rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Currency of one country can be exchanged for the currency of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages
domino effect

7. How can translation exposure be described?
Banks stability was measure at a 5% capital adequacy ratio
Impact of currency exchange rate changes on reported financial statements
Exchange rates are determined by the demand and supply for different currencies
Obligations for the purchase or sale of goods and services at previously agreed prices

8. It is important to stay __________ with your current events
Spot rates and forward rates
24/7
Delay payables if currency is expected to depreciate
up to date

9. What is the second role of the U.S. dollar outside the U.S. ?
Exchange rates are determined by the demand and supply for different currencies
Intervention currency (peg country currency)
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values

10. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
up to date
Lead and lag strategies

11. What are some factors that influence exchange rates?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

12. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Monetary and fiscal policies
A common reference
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

13. What is the purpose of not concentrating assets in countries?
Borrowing of funds in foreign currency
up to date
Increase currency values and protect against increases in foreign prices of goods and services
agreed upon austerity

14. What are the characteristics of economic exposure?
True
The income form individual transacations
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Borrowing of funds in foreign currency

15. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
Obligations for the purchase or sale of goods and services at previously agreed prices

16. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Interest rates and money supply
Impact of currency exchange rate changes on reported financial statements
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

17. What is a spot rate?
Productivity and balance payments
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
Forward exchange or spot exchange

18. What is the second issue with EFSF?
Exchange rates are determined by the demand and supply for different currencies
up to date
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
An attempt to collect currency receivables early as result of expected depreciation

19. What is externally convertible currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Goods and services of one country can be exchanged for the goods and services of another country
Affected by fluctuation in foreign exchange values

20. What is the second thing that determines the Forex rates?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Monetary and fiscal policies
Interest rates and money supply
State driven recapitalization are now needed

21. Greece has not defaulted because it has not been able to fully implement its...
Borrowing of funds in foreign currency
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
agreed upon austerity
Control the amount of money in circulation - enforced by government policies - focus on growth rate

22. What is the first issue with EFSF?
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
Obligations for the purchase or sale of goods and services at previously agreed prices
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

23. What is the first characteristic of lead strategy?
Inflation - interest rate - and market psychology
Spot rates - forward rates - and swaps
An attempt to collect currency receivables early as result of expected depreciation
London - New York - Tokyo - and Singapore

24. What are the types of Exchange Rate Fluctuations?
Spot rates and forward rates
Monetary and fiscal policies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Increase their exposure to banking -'s banking center

25. What is economic exposure?
Firms future international earning power
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
Currency of one country can be exchanged for the currency of another country
True

26. What is the nature of the forex market?
Transaction - translation and economic exposure
Exchange rate policies
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
agreed upon austerity

27. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Monetary and fiscal 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
Delay payables if currency is expected to depreciate

28. No single theory can explain explain the causes the value of currencies to change. True or False?
Lead and lag strategies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

29. What is arbitrage?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

30. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Goods and services of one country can be exchanged for the goods and services of another country
Lead and lag strategies
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

31. What is the third thing that determines the forex rates?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Productivity and balance payments
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country

32. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
True
Group of investors movement in the same direction and same time or government intervention

33. What is the first characteristic of transaction exposure ?
Group of investors movement in the same direction and same time or government intervention
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

34. What is the first characteristic of lag strategy?
Increase currency values and protect against increases in foreign prices of goods and services
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Impact of currency exchange rate changes on reported financial statements
Delay collection of foreign currency receivables if currency is exception to appreciate

35. What is a currency swamp?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Issue mo good loans so that profits from new business can eat away the losses form the bad
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
True

36. What is hedging?

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37. How can transaction exposure be described?
Forward exchange or spot exchange
Affected by fluctuation in foreign exchange values
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The income form individual transacations

38. How do you establish central control?
An attempt to collect currency receivables early as result of expected depreciation
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
24/7
Spot rates and forward rates

39. What are other strategies for managing forex risk?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values
Obligations for the purchase or sale of goods and services at previously agreed prices

40. What is a forward rate?
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;future delievery in 30/60/90/180 days
Affected by fluctuation in foreign exchange values
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

41. What are two methods of reducing translation and transaction exposure?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies
Collecting & spending of money by the government

42. Most Transaction inovolve...
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
u.s. dollar
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
True

43. What are the first two things that determine Forex rates?
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
24/7
Banks stability was measure at a 5% capital adequacy ratio
Relative price differences and ppp

44. Defaulting on debt has a __________ that intertwines all countries in Europe.
Issue mo good loans so that profits from new business can eat away the losses form the bad
domino effect
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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

45. 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
An attempt to collect currency receivables early as result of expected depreciation
Spot rates - forward rates - and swaps

46. What is the law of one price?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Interest rates and money supply
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
State driven recapitalization are now needed

47. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Banks stability was measure at a 5% capital adequacy ratio
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transportation costs - trade barriers - and not trade inputs such as rents or wages

48. Burger economics!!! Why do we use it?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
London - New York - Tokyo - and Singapore
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

49. What is the fourth thing that determines the forex rates?
24/7
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
Exchange rate policies
Exchange rates are determined by the demand and supply for different currencies

50. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Affected by fluctuation in foreign exchange values
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Lending of funds in foreign currencies
Issue mo good loans so that profits from new business can eat away the losses form the bad