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Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
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 is hedging?

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2. Bailout Fund of EFSF - What is this shiz nitz?
An attempt to collect currency receivables early as result of expected depreciation
Issue mo good loans so that profits from new business can eat away the losses form the bad
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

3. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Spot rates - forward rates - and swaps
London - New York - Tokyo - and Singapore
State driven recapitalization are now needed
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

4. What is the first characteristic of transaction 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 process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Affected by fluctuation in foreign exchange values
London - New York - Tokyo - and Singapore

5. What is the first issue with EFSF?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
up to date
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

6. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True
Inflation - interest rate - and market psychology

7. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Issue mo good loans so that profits from new business can eat away the losses form the bad
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

8. What is the third characteristic of transaction exposure?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Borrowing of funds in foreign currency
Impact of currency exchange rate changes on reported financial statements
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

9. What is the second characteristic of lead strategy?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Paying foreign currency payable before dues as a result expected currency appreciation
24/7
Lending of funds in foreign currencies

10. What is the second issue with EFSF?
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
State driven recapitalization are now needed
Obligations for the purchase or sale of goods and services at previously agreed prices
Monetary and fiscal policies

11. When do countries use the foreign exchange market?
Transaction - translation and economic exposure
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Control the amount of money in circulation - enforced by government policies - focus on growth rate

12. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Spot rates - forward rates - and swaps
Lead and lag strategies
True
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

13. What is a forward rate?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
Reserve currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

14. Most Transaction inovolve...
Firms future international earning power
1. distribute productive assets 2. ensure assets are not concentrated in countries
u.s. dollar
Goods and services of one country can be exchanged for the goods and services of another country

15. What causes big mac prices to vary?
Vehicle currency(transaction between 2 less commonly used currencies)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Lead and lag strategies
True

16. What are other strategies for managing forex risk?
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
Forward exchange or spot exchange
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

17. What is the fifth thing that determines the forex rates?
Measurement of past events
agreed upon austerity
Obligations for the purchase or sale of goods and services at previously agreed prices
Investor psychology

18. What are the important trading centers?
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
London - New York - Tokyo - and Singapore
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

19. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

20. Defaulting on debt has a __________ that intertwines all countries in Europe.
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Collecting & spending of money by the government
domino effect

21. What is the second thing that determines the Forex rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Interest rates and money supply
Vehicle currency(transaction between 2 less commonly used currencies)

22. According to economic theories of exchage rate determination?
Increase currency values and protect against increases in foreign prices of goods and services
Large number of individuals and cos exchange of domestic currencies for a foreign currency
True
Exchange rates are determined by the demand and supply for different currencies

23. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Investor psychology
A common reference

24. What are some characteristics of swaps?
Paying foreign currency payable before dues as a result expected currency appreciation
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
u.s. dollar

25. What is the nominal exchange rate?
Exchange rate policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Collecting & spending of money by the government
Currency of one country can be exchanged for the currency of another country

26. What is the fourth roles of the U.S. dollar outside the U.S.?
Collecting & spending of money by the government
Firms future international earning power
Vehicle currency(transaction between 2 less commonly used currencies)
Goods and services of one country can be exchanged for the goods and services of another country

27. What is the bandwagon effect when looking at form investor psychology ?
State driven recapitalization are now needed
Impact of currency exchange rate changes on reported financial statements
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Group of investors movement in the same direction and same time or government intervention

28. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
A common reference
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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. What is a spot rate?
Group of investors movement in the same direction and same time or government intervention
Paying foreign currency payable before dues as a result expected currency appreciation
State driven recapitalization are now needed
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

30. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Banks stability was measure at a 5% capital adequacy ratio
Increase their exposure to banking -'s banking center
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

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

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32. What are some strategies for managing forex risk?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Establish central control and attempts to forecast future exchange rates
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Collecting & spending of money by the government

33. What is the first characteristic of lag strategy?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Affected by fluctuation in foreign exchange values
It helps them understand the influence of exchange rates on profitability of trade investment deals
Delay collection of foreign currency receivables if currency is exception to appreciate

34. What is the characteristic of translation expose?
24/7
Measurement of past events
domino effect
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

35. What is externally convertible currency
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 collection of foreign currency receivables if currency is exception to appreciate
Vehicle currency(transaction between 2 less commonly used currencies)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

36. What is arbitrage?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Reserve currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
up to date

37. What is the third role of the U.S. dollar outside the U.S.?
A common reference
Banks stability was measure at a 5% capital adequacy ratio
Reserve currency
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

38. What is economic exposure?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Firms future international earning power
Lending of funds in foreign currencies
The income form individual transacations

39. What is the fourth thing that determines the forex rates?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Reserve currency
Exchange rate policies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

40. What is the nature of the forex market?
Firms future international earning power
A common reference
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange 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 are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Interest rates and money supply
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values

42. What is the real 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
Productivity and balance payments
Vehicle currency(transaction between 2 less commonly used currencies)
Goods and services of one country can be exchanged for the goods and services of another country

43. What is the law of one price?
Measurement of past events
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
agreed upon austerity

44. How can translation exposure be described?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Impact of currency exchange rate changes on reported financial statements
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

45. What holds true to Purchase Power Parity Theory?
A common reference
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
Increase currency values and protect against increases in foreign prices of goods and services

46. What is the purpose of not concentrating assets in countries?
Delay payables if currency is expected to depreciate
Increase currency values and protect against increases in foreign prices of goods and services
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

47. It is important to stay __________ with your current events
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
up to date
Delay collection of foreign currency receivables if currency is exception to appreciate
Exchange rate policies

48. No single theory can explain explain the causes the value of currencies to change. True or False?
It helps them understand the influence of exchange rates on profitability of trade investment deals
An attempt to collect currency receivables early as result of expected depreciation
True
domino effect

49. What are the two ways to quote currency?
The income form individual transacations
Affected by fluctuation in foreign exchange values
Spot rates and forward rates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

50. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Banks stability was measure at a 5% capital adequacy ratio
Spot rates - forward rates - and swaps
Issue mo good loans so that profits from new business can eat away the losses form the bad