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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 implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Control the amount of money in circulation - enforced by government policies - focus on growth rate

2. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Investor psychology
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Impact of currency exchange rate changes on reported financial statements

3. 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
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
Lending of funds in foreign currencies

4. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Firms future international earning power
Delay payables if currency is expected to depreciate
Interest rates and money supply

5. 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
It helps them understand the influence of exchange rates on profitability of trade investment deals
agreed upon austerity
Transaction - translation and economic exposure

6. 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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Intervention currency (peg country currency)
An attempt to collect currency receivables early as result of expected depreciation

7. It is important to stay __________ with your current events
Impact of currency exchange rate changes on reported financial statements
Lead and lag strategies
up to date
Transportation costs - trade barriers - and not trade inputs such as rents or wages

8. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
The income form individual transacations
True
u.s. dollar

9. What is the fourth characteristic of transaction exposure?
An attempt to collect currency receivables early as result of expected depreciation
Borrowing of funds in foreign currency
Group of investors movement in the same direction and same time or government intervention
Lending of funds in foreign currencies

10. What is the third role of the U.S. dollar outside the U.S.?
Spot rates - forward rates - and swaps
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Exchange rate policies

11. What are the two ways to quote 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
Spot rates and forward rates
Increase currency values and protect against increases in foreign prices of goods and services
domino effect

12. What is arbitrage?
State driven recapitalization are now needed
True
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

13. What is the fifth thing that determines the forex rates?
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Investor psychology
Monetary and fiscal policies

14. Defaulting on debt has a __________ that intertwines all countries in Europe.
Investor psychology
u.s. dollar
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
domino effect

15. What is the law of one price?
Transaction - translation and economic exposure
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;future delievery in 30/60/90/180 days
u.s. dollar

16. What are the types of Exchange Rate Fluctuations?
Issue mo good loans so that profits from new business can eat away the losses form the bad
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Monetary and fiscal policies

17. Burger economics!!! Why do we use it?
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Transaction - translation and economic exposure
A common reference

18. What is non convertible currency?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lead and lag strategies
The income form individual transacations
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

19. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
A common reference
Forward exchange or spot exchange
State driven recapitalization are now needed
Issue mo good loans so that profits from new business can eat away the losses form the bad

20. What is economic exposure?
Investor psychology
Firms future international earning power
up to date
It helps them understand the influence of exchange rates on profitability of trade investment deals

21. What causes big mac prices to vary?
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)
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

22. What is the second issue with EFSF?
Forward exchange or spot exchange
Intervention currency (peg country currency)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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

23. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Collecting & spending of money by the government

24. What is externally convertible currency
Collecting & spending of money by the government
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
agreed upon austerity

25. What are some strategies for managing forex risk?
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
Establish central control and attempts to forecast future exchange rates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase their exposure to banking -'s banking center

26. What are some characteristics of swaps?
Delay payables if currency is expected to depreciate
Reserve 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
24/7

27. What is the third characteristic of transaction exposure?
Increase currency values and protect against increases in foreign prices of goods and services
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
Borrowing of funds in foreign currency

28. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Firms future international earning power
24/7
Measurement of past events

29. How do you insure or hedge against a Forex risk?
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
Exchange rate policies
Interest rates and money supply

30. What holds true to Purchase Power Parity Theory?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Firms future international earning power
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. 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

31. How do you establish central control?
Inflation - interest rate - and market psychology
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Interest rates and money supply
Monetary and fiscal policies

32. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Transaction - translation and economic exposure
1. distribute productive assets 2. ensure assets are not concentrated in countries
Collecting & spending of money by the government

33. What is the first characteristic of transaction exposure ?
Collecting & spending of money by the government
Increase their exposure to banking -'s banking center
Affected by fluctuation in foreign exchange values
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

34. What are the two ways to reduce economic exposure?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. distribute productive assets 2. ensure assets are not concentrated in countries
up to date
London - New York - Tokyo - and Singapore

35. What is the fourth roles of the U.S. dollar outside the U.S.?
Investor psychology
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
up to date

36. According to economic theories of exchage rate determination?
Goods and services of one country can be exchanged for the goods and services of another country
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
up to date
Exchange rates are determined by the demand and supply for different currencies

37. What is a spot rate?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Affected by fluctuation in foreign exchange values

38. What are some factors that influence exchange rates?
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Obligations for the purchase or sale of goods and services at previously agreed prices

39. What are two methods of reducing translation and transaction exposure?
The income form individual transacations
True
Delay payables if currency is expected to depreciate
Lead and lag strategies

40. What is the nominal exchange rate?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Currency of one country can be exchanged for the currency of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
u.s. dollar

41. What is the fourth thing that determines the forex rates?
Transaction - translation and economic exposure
Exchange rate policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase their exposure to banking -'s banking center

42. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Delay collection of foreign currency receivables if currency is exception to appreciate
Exchange rates are determined by the demand and supply for different currencies
True

43. Marekts are open...
Measurement of past events
Exchange rate policies
24/7
State driven recapitalization are now needed

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

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45. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Increase currency values and protect against increases in foreign prices of goods and services
24/7
Exchange rate policies

46. What is the first issue with EFSF?
Intervention currency (peg country currency)
An attempt to collect currency receivables early as result of expected depreciation
Impact of currency exchange rate changes on reported financial statements
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

47. What is the second characteristic of lead strategy?
24/7
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
Paying foreign currency payable before dues as a result expected currency appreciation
Lead and lag strategies

48. How can translation exposure be described?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Banks stability was measure at a 5% capital adequacy ratio
Impact of currency exchange rate changes on reported financial statements
Establish central control and attempts to forecast future exchange rates

49. What is the characteristic of translation expose?
Measurement of past events
Borrowing of funds in foreign currency
u.s. dollar
True

50. What is the first roels of the U.S. dollar outside the U.S.?
24/7
A common reference
The income form individual transacations
agreed upon austerity