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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. It is important to stay __________ with your current events
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
It helps them understand the influence of exchange rates on profitability of trade investment deals
up to date
Increase their exposure to banking -'s banking center

2. What is the nature of the forex market?
Investor psychology
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
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

3. 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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Obligations for the purchase or sale of goods and services at previously agreed prices
24/7

4. What are other strategies for managing forex risk?
Reserve currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Exchange rates are determined by the demand and supply for different currencies
Goods and services of one country can be exchanged for the goods and services of another country

5. Marekts are open...
24/7
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. protect resources efficiently 2. ensure correct mix of tactics and strategies
Measurement of past events

6. What are the three ways of insuring against a Forex risk?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Productivity and balance payments
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates - forward rates - and swaps

7. What is the second role of the U.S. dollar outside the U.S. ?
Vehicle currency(transaction between 2 less commonly used currencies)
The income form individual transacations
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
Intervention currency (peg country currency)

8. What is the nominal exchange rate?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Affected by fluctuation in foreign exchange values
Currency of one country can be exchanged for the currency of another country
Investor psychology

9. What are some characteristics of swaps?
24/7
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
Transaction - translation and economic exposure
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

10. How do you insure or hedge against a Forex risk?
State driven recapitalization are now needed
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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

11. Most Transaction inovolve...
Currency of one country can be exchanged for the currency of another country
u.s. dollar
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
An attempt to collect currency receivables early as result of expected depreciation

12. Greece has not defaulted because it has not been able to fully implement its...
An attempt to collect currency receivables early as result of expected depreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Banks stability was measure at a 5% capital adequacy ratio
agreed upon austerity

13. According to economic theories of exchage rate determination?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rates are determined by the demand and supply for different currencies

14. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
The income form individual transacations
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

15. What is the fifth thing that determines the forex rates?
Investor psychology
Relative price differences and ppp
Interest rates and money supply
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

16. What is the second characteristic of lead strategy?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
London - New York - Tokyo - and Singapore
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

17. What are the characteristics of economic exposure?
Investor psychology
Goods and services of one country can be exchanged for the goods and services of another country
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

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

19. Bailout Fund of EFSF - What is this shiz nitz?
Investor psychology
24/7
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

20. What is the purpose of not concentrating assets in countries?
Interest rates and money supply
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
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

21. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Spot rates - forward rates - and swaps
Delay payables if currency is expected to depreciate
up to date

22. What is a forward rate?
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Vehicle currency(transaction between 2 less commonly used currencies)

23. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Measurement of past events
Productivity and balance payments
An attempt to collect currency receivables early as result of expected depreciation
True

24. What is free convertible currency?
Goods and services of one country can be exchanged for the goods and services of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
up to date
Delay payables if currency is expected to depreciate

25. What is the law of one price?
Lending of funds in foreign 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
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

26. What is the second thing that determines the Forex rates?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply
Impact of currency exchange rate changes on reported financial statements
Delay payables if currency is expected to depreciate

27. What is the real exchange rate?
Relative price differences and ppp
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Goods and services of one country can be exchanged for the goods and services of another country

28. What is hedging?

29. How can transaction exposure be described?
Intervention currency (peg country currency)
domino effect
The income form individual transacations
Banks stability was measure at a 5% capital adequacy ratio

30. When do countries use foreign exchange market?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Productivity and balance payments
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 are the purposes of fiscal policies?
Collecting & spending of money by the government
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Control the amount of money in circulation - enforced by government policies - focus on growth rate

32. What are the three different types of foreign exchange rate risks?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Investor psychology
Transaction - translation and economic exposure
Establish central control and attempts to forecast future exchange rates

33. What is externally convertible currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Obligations for the purchase or sale of goods and services at previously agreed prices

34. What is the first characteristic of lag strategy?
u.s. dollar
Borrowing of funds in foreign currency
Delay collection of foreign currency receivables if currency is exception to appreciate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

35. What is the fourth thing that determines the forex rates?
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
Lending of funds in foreign currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rate policies

36. What is non convertible currency?
Affected by fluctuation in foreign exchange values
Establish central control and attempts to forecast future exchange rates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Productivity and balance payments

37. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
24/7
Delay collection of foreign currency receivables if currency is exception to appreciate
Lending of funds in foreign currencies

38. What are some factors that influence exchange rates?
Monetary and fiscal policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Forward exchange or spot exchange
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

39. What is the characteristic of translation expose?
Relative price differences and ppp
Measurement of past events
True
Inflation - interest rate - and market psychology

40. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase currency values and protect against increases in foreign prices of goods and services
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
Spot rates and forward rates

41. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Inflation - interest rate - and market psychology
Establish central control and attempts to forecast future exchange rates
u.s. dollar

42. What do monetary policies do?
24/7
u.s. dollar
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rate policies

43. What implications does understanding foreign exchange rates have on managers?
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 helps them understand the influence of exchange rates on profitability of trade investment deals
A common reference
True

44. When do countries use the foreign exchange market?
u.s. dollar
Affected by fluctuation in foreign exchange values
Group of investors movement in the same direction and same time or government intervention
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

45. What is the third characteristic of transaction exposure?
Group of investors movement in the same direction and same time or government intervention
Borrowing of funds in foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Spot rates and forward rates

46. What are the two ways to quote currency?
Currency of one country can be exchanged for the currency of another country
Spot rates and forward rates
agreed upon austerity
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

47. What is arbitrage?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Intervention currency (peg country currency)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

48. How do you establish central control?
Spot rates - forward rates - and swaps
Delay payables if currency is expected to depreciate
Lead and lag strategies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

49. What are the important trading centers?
Paying foreign currency payable before dues as a result expected currency appreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Measurement of past events
London - New York - Tokyo - and Singapore

50. How can translation exposure be described?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Exchange rate policies
Monetary and fiscal policies
Impact of currency exchange rate changes on reported financial statements