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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 is the second issue with EFSF?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps
An attempt to collect currency receivables early as result of expected depreciation
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

2. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Lead and lag strategies
Investor psychology
Control the amount of money in circulation - enforced by government policies - focus on growth rate

3. What is externally convertible currency
The income form individual transacations
True
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

4. Most Transaction inovolve...
An attempt to collect currency receivables early as result of expected depreciation
Transaction - translation and economic exposure
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
u.s. dollar

5. What is the second characteristic of lag strategy?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Obligations for the purchase or sale of goods and services at previously agreed prices
Investor psychology
Delay payables if currency is expected to depreciate

6. When do countries use the foreign exchange market?
Productivity and balance payments
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

7. What are the first two things that determine Forex rates?
Affected by fluctuation in foreign exchange values
Spot rates - forward rates - and swaps
Relative price differences and ppp
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

8. What is the fourth roles of the U.S. dollar outside the U.S.?
Obligations for the purchase or sale of goods and services at previously agreed prices
u.s. dollar
Paying foreign currency payable before dues as a result expected currency appreciation
Vehicle currency(transaction between 2 less commonly used currencies)

9. What are the two ways to quote currency?
Spot rates and forward rates
The income form individual transacations
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Establish central control and attempts to forecast future exchange rates

10. What are some factors that influence exchange rates?
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
Vehicle currency(transaction between 2 less commonly used currencies)
State driven recapitalization are now needed
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

11. What are the purposes of fiscal policies?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Measurement of past events
Banks stability was measure at a 5% capital adequacy ratio
Collecting & spending of money by the government

12. When do countries use foreign exchange market?
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
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
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
True

13. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Transaction - translation and economic exposure
Measurement of past events
An attempt to collect currency receivables early as result of expected depreciation

14. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

15. Burger economics!!! Why do we use it?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates and forward rates

16. What is the characteristic of translation expose?
Delay collection of foreign currency receivables if currency is exception to appreciate
Measurement of past events
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
True

17. What are the characteristics of economic exposure?
Establish central control and attempts to forecast future exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
True
24/7

18. What is the law of one price?
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rates are determined by the demand and supply for different 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

19. What are other strategies for managing forex risk?
Impact of currency exchange rate changes on reported financial statements
Issue mo good loans so that profits from new business can eat away the losses form the bad
London - New York - Tokyo - and Singapore
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

20. What are two methods of reducing translation and transaction exposure?
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
Lead and lag strategies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

21. What are the three different types of foreign exchange rate risks?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Productivity and balance payments
Transaction - translation and economic exposure
Forward exchange or spot exchange

22. Defaulting on debt has a __________ that intertwines all countries in Europe.
Spot rates and forward rates
Large number of individuals and cos exchange of domestic currencies for a foreign currency
domino effect
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

23. How can transaction exposure be described?
The income form individual transacations
domino effect
Group of investors movement in the same direction and same time or government intervention
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

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

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25. According to economic theories of exchage rate determination?
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
Exchange rates are determined by the demand and supply for different currencies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

26. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Firms future international earning power
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Vehicle currency(transaction between 2 less commonly used currencies)

27. Bailout Fund of EFSF - What is this shiz nitz?
Inflation - interest rate - and market psychology
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
Investor psychology

28. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
A common reference
Borrowing of funds in foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

29. What is the real exchange rate?
Currency of one country can be exchanged for the currency of another country
Productivity and balance payments
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates - forward rates - and swaps

30. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Transaction - translation and economic exposure
True
Increase their exposure to banking -'s banking center
Impact of currency exchange rate changes on reported financial statements

31. What is the second thing that determines the Forex rates?
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply
London - New York - Tokyo - and Singapore
Firms future international earning power

32. What is the first issue with EFSF?
Collecting & spending of money by the government
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
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

33. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
It helps them understand the influence of exchange rates on profitability of trade investment deals
True
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
State driven recapitalization are now needed

34. What is the fifth thing that determines the forex rates?
Reserve currency
Investor psychology
The income form individual transacations
Increase their exposure to banking -'s banking center

35. What are some strategies for managing forex risk?
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates - forward rates - and swaps
Establish central control and attempts to forecast future exchange rates
Intervention currency (peg country currency)

36. What is the first characteristic of lag strategy?
Monetary and fiscal policies
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

37. What is the first characteristic of lead strategy?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
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
An attempt to collect currency receivables early as result of expected depreciation

38. How do you establish central control?
Inflation - interest rate - and market psychology
Exchange rates are determined by the demand and supply for different currencies
Delay collection of foreign currency receivables if currency is exception to appreciate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

39. 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
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
A common reference
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

40. What is the first characteristic of transaction exposure ?
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
Spot rates and forward rates
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

41. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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)
Obligations for the purchase or sale of goods and services at previously agreed prices

42. What is the bandwagon effect when looking at form investor psychology ?
Paying foreign currency payable before dues as a result expected currency appreciation
Group of investors movement in the same direction and same time or government intervention
Firms future international earning power
Relative price differences and ppp

43. It is important to stay __________ with your current events
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
up to date
Currency of one country can be exchanged for the currency of another country
Exchange rates are determined by the demand and supply for different currencies

44. What is the first roels of the U.S. dollar outside the U.S.?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
A common reference

45. What is the third thing that determines the forex rates?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Productivity and balance payments

46. 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)
Currency of one country can be exchanged for the currency of another country
Collecting & spending of money by the government

47. 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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments
domino effect

48. What are the types of Exchange Rate Fluctuations?
Measurement of past events
Monetary and fiscal policies
Intervention currency (peg country currency)
Forward exchange or spot exchange

49. What is the third role of the U.S. dollar outside the U.S.?
Delay payables if currency is expected to depreciate
u.s. dollar
domino effect
Reserve currency

50. What is the purpose of not concentrating assets in countries?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Increase currency values and protect against increases in foreign prices of goods and services
Impact of currency exchange rate changes on reported financial statements
Inflation - interest rate - and market psychology