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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. 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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Forward exchange or spot exchange

2. What is the second thing that determines the Forex rates?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Lending of funds in foreign currencies
Interest rates and money supply
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

3. What is the real exchange rate?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Goods and services of one country can be exchanged for the goods and services of another country
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

4. It is important to stay __________ with your current events
Lending of funds in foreign currencies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
up to date
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

5. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Banks stability was measure at a 5% capital adequacy ratio
Delay collection of foreign currency receivables if currency is exception to appreciate
Control the amount of money in circulation - enforced by government policies - focus on growth rate

6. What are the characteristics of economic exposure?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates - forward rates - and swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals

7. What is non convertible currency?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Currency of one country can be exchanged for the currency of another country
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

8. What implications does understanding foreign exchange rates have on managers?
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
Lending of funds in foreign currencies
It helps them understand the influence of exchange rates on profitability of trade investment deals

9. What are the important trading centers?
Increase currency values and protect against increases in foreign prices of goods and services
Borrowing of funds in foreign currency
up to date
London - New York - Tokyo - and Singapore

10. What is the first characteristic of lead strategy?
domino effect
Intervention currency (peg country currency)
Issue mo good loans so that profits from new business can eat away the losses form the bad
An attempt to collect currency receivables early as result of expected depreciation

11. What are some strategies for managing forex risk?
Banks stability was measure at a 5% capital adequacy ratio
Spot rates and forward rates
Establish central control and attempts to forecast future exchange rates
Paying foreign currency payable before dues as a result expected currency appreciation

12. What is the third thing that determines the forex rates?
Exchange rate policies
Establish central control and attempts to forecast future exchange rates
Intervention currency (peg country currency)
Productivity and balance payments

13. What are the purposes of fiscal policies?
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Collecting & spending of money by the government

14. What is the first roels of the U.S. dollar outside the U.S.?
Interest rates and money supply
A common reference
agreed upon austerity
Relative price differences and ppp

15. What is the second characteristic of lead strategy?
Measurement of past events
A common reference
Forward exchange or spot exchange
Paying foreign currency payable before dues as a result expected currency appreciation

16. What is free convertible currency?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Banks stability was measure at a 5% capital adequacy ratio
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

17. What are the three different types of foreign exchange rate risks?
Establish central control and attempts to forecast future exchange rates
Transaction - translation and economic exposure
Lending of funds in foreign currencies
Increase currency values and protect against increases in foreign prices of goods and services

18. 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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Forward exchange or spot exchange
Inflation - interest rate - and market psychology

19. What is the first characteristic of transaction exposure ?
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
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

20. What is the second role of the U.S. dollar outside the U.S. ?
True
Intervention currency (peg country currency)
Obligations for the purchase or sale of goods and services at previously agreed prices
Lending of funds in foreign currencies

21. What holds true to Purchase Power Parity Theory?
Measurement of past events
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
Investor psychology
Exchange rates are determined by the demand and supply for different currencies

22. What is economic exposure?
Firms future international earning power
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values
Reserve currency

23. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Increase their exposure to banking -'s banking center
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Issue mo good loans so that profits from new business can eat away the losses form the bad

24. When do countries use the foreign exchange market?
An attempt to collect currency receivables early as result of expected depreciation
Banks stability was measure at a 5% capital adequacy ratio
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

25. What are some characteristics of swaps?
The income form individual transacations
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
Exchange rate 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

26. What is the second characteristic of transaction exposure?
Exchange rate policies
Obligations for the purchase or sale of goods and services at previously agreed prices
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Delay collection of foreign currency receivables if currency is exception to appreciate

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
An attempt to collect currency receivables early as result of expected depreciation
It helps them understand the influence of exchange rates on profitability of trade investment deals
Group of investors movement in the same direction and same time or government intervention

28. How can translation exposure be described?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Impact of currency exchange rate changes on reported financial statements
agreed upon austerity
Establish central control and attempts to forecast future exchange rates

29. What is the nature of the forex market?
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)
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
Exchange rate policies

30. What is hedging?

31. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Issue mo good loans so that profits from new business can eat away the losses form the bad
Currency of one country can be exchanged for the currency of another country

32. What is capital fight when looking at it form investor psychology?
Affected by fluctuation in foreign exchange values
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)

33. How and What is the purpose of distributing assets?
Spot rates - forward rates - and swaps
Productivity and balance payments
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

34. 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
Measurement of past events
Investor psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

35. What are some factors that influence exchange rates?
Establish central control and attempts to forecast future exchange rates
It helps them understand the influence of exchange rates on profitability of trade investment deals
Productivity and balance payments
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

36. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

37. 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 income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Lending of funds in foreign currencies

38. No single theory can explain explain the causes the value of currencies to change. True or False?
Measurement of past events
Exchange rate policies
Transaction - translation and economic exposure
True

39. The euro faces risks fo recapitalization?
Delay payables if currency is expected to depreciate
Group of investors movement in the same direction and same time or government intervention
Banks stability was measure at a 5% capital adequacy ratio
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

40. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
London - New York - Tokyo - and Singapore
Goods and services of one country can be exchanged for the goods and services of another country
up to date

41. Bailout Fund of EFSF - What is this shiz nitz?
London - New York - Tokyo - and Singapore
Spot rates and forward rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Banks stability was measure at a 5% capital adequacy ratio

42. What is a spot rate?
Increase currency values and protect against increases in foreign prices of goods and services
Investor psychology
Intervention currency (peg country currency)
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

43. What is the nominal exchange 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 currency values and protect against increases in foreign prices of goods and services
Obligations for the purchase or sale of goods and services at previously agreed prices
Currency of one country can be exchanged for the currency of another country

44. Most Transaction inovolve...
London - New York - Tokyo - and Singapore
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
Spot rates - forward rates - and swaps
u.s. dollar

45. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Delay collection of foreign currency receivables if currency is exception to appreciate
Group of investors movement in the same direction and same time or government intervention
Transportation costs - trade barriers - and not trade inputs such as rents or wages

46. How do you insure or hedge against a Forex risk?
Relative price differences and ppp
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Forward exchange or spot exchange
State driven recapitalization are now needed

47. Marekts are open...
24/7
domino effect
Delay payables if currency is expected to depreciate
Inflation - interest rate - and market psychology

48. What is the fourth thing that determines the forex rates?
Exchange rate policies
Affected by fluctuation in foreign exchange values
Firms future international earning power
Lending of funds in foreign currencies

49. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Relative price differences and ppp
Delay payables if currency is expected to depreciate

50. What is a forward rate?
A common reference
An attempt to collect currency receivables early as result of expected depreciation
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
True