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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 first characteristic of transaction exposure ?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
Affected by fluctuation in foreign exchange values

2. What is the second thing that determines the Forex rates?
Lending of funds in foreign currencies
Interest rates and money supply
Impact of currency exchange rate changes on reported financial statements
agreed upon austerity

3. What are the purposes of fiscal policies?
Banks stability was measure at a 5% capital adequacy ratio
Collecting & spending of money by the government
Investor psychology
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

4. 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
Exchange rates are determined by the demand and supply for different currencies
u.s. dollar
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

5. What are other strategies for managing forex risk?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
An attempt to collect currency receivables early as result of expected depreciation
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

6. What is a forward rate?
An attempt to collect currency receivables early as result of expected depreciation
Obligations for the purchase or sale of goods and services at previously agreed prices
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

7. According to economic theories of exchage rate determination?
Transaction - translation and economic exposure
Exchange rates are determined by the demand and supply for different currencies
Paying foreign currency payable before dues as a result expected currency appreciation
u.s. dollar

8. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
agreed upon austerity
Exchange rate policies
Increase currency values and protect against increases in foreign prices of goods and services

9. What are the types of Exchange Rate Fluctuations?
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
Monetary and fiscal policies
True

10. What are the three ways of insuring against a Forex risk?
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates - forward rates - and swaps
An attempt to collect currency receivables early as result of expected depreciation
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

11. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Reserve currency
Firms future international earning power
State driven recapitalization are now needed
An attempt to collect currency receivables early as result of expected depreciation

12. Marekts are open...
up to date
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies
24/7

13. What is the characteristic of translation expose?
Measurement of past events
Exchange rate policies
Affected by fluctuation in foreign exchange values
Intervention currency (peg country currency)

14. What is capital fight when looking at it form investor psychology?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay payables if currency is expected to depreciate

15. What is the purpose of not concentrating assets in countries?
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Paying foreign currency payable before dues as a result expected currency appreciation

16. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Lead and lag strategies
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

17. How do you insure or hedge against a Forex risk?
Borrowing of funds in foreign 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
The income form individual transacations
Forward exchange or spot exchange

18. What is the fourth thing that determines the forex rates?
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

19. What is the second characteristic of lag strategy?
up to date
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp
Delay payables if currency is expected to depreciate

20. What is economic exposure?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Firms future international earning power
Spot rates - forward rates - and swaps

21. What is free convertible currency?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
agreed upon austerity
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

22. 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
Collecting & spending of money by the government
Establish central control and attempts to forecast future exchange rates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

23. What do monetary policies do?
Lead and lag strategies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Vehicle currency(transaction between 2 less commonly used currencies)
Group of investors movement in the same direction and same time or government intervention

24. What is the second issue with EFSF?
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
State driven recapitalization are now needed
Spot rates and forward rates

25. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Banks stability was measure at a 5% capital adequacy ratio
Lending of funds in foreign currencies
Affected by fluctuation in foreign exchange values

26. Greece has not defaulted because it has not been able to fully implement its...
Large number of individuals and cos exchange of domestic currencies for a foreign currency
agreed upon austerity
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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

27. What are the two ways to quote currency?
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
Spot rates and forward rates
Inflation - interest rate - and market psychology

28. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Collecting & spending of money by the government
Currency of one country can be exchanged for the currency of another country

29. What is the law of one price?
Spot rates and forward rates
Productivity and balance payments
Delay collection of foreign currency receivables if currency is exception to appreciate
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

30. How can transaction exposure be described?
Lending of funds in foreign currencies
Inflation - interest rate - and market psychology
The income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages

31. Bailout Fund of EFSF - What is this shiz nitz?
Investor psychology
It helps them understand the influence of exchange rates on profitability of trade investment deals
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transaction - translation and economic exposure

32. What is a spot rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country

33. What is hedging?

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34. What is the third thing that determines the forex rates?
Productivity and balance payments
Firms future international earning power
up to date
Lending of funds in foreign currencies

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

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36. What is the real exchange rate?
Spot rates - forward rates - and swaps
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

37. What is the first roels of the U.S. dollar outside the U.S.?
Paying foreign currency payable before dues as a result expected currency appreciation
Intervention currency (peg country currency)
A common reference
Establish central control and attempts to forecast future exchange rates

38. What is the fourth characteristic of transaction exposure?
Vehicle currency(transaction between 2 less commonly used currencies)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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

39. No single theory can explain explain the causes the value of currencies to change. True or False?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
True
Firms future international earning power
Increase currency values and protect against increases in foreign prices of goods and services

40. Burger economics!!! Why do we use it?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Lending of funds in foreign currencies

41. What is the third characteristic of transaction exposure?
24/7
Borrowing of funds in foreign currency
Relative price differences and ppp
u.s. dollar

42. What are some strategies for managing forex risk?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Establish central control and attempts to forecast future exchange rates
Goods and services of one country can be exchanged for the goods and services of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

43. What are the two ways to reduce economic exposure?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Issue mo good loans so that profits from new business can eat away the losses form the bad

44. When do countries use foreign exchange market?
1. protect resources efficiently 2. ensure correct mix of tactics and 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Group of investors movement in the same direction and same time or government intervention

45. What is the first characteristic of lag strategy?
Collecting & spending of money by the government
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Delay collection of foreign currency receivables if currency is exception to appreciate
Inflation - interest rate - and market psychology

46. It is important to stay __________ with your current events
up to date
Exchange rate policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

47. What is the first characteristic of lead strategy?
1. distribute productive assets 2. ensure assets are not concentrated in countries
An attempt to collect currency receivables early as result of expected depreciation
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Increase currency values and protect against increases in foreign prices of goods and services

48. What are the important trading centers?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Collecting & spending of money by the government
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
London - New York - Tokyo - and Singapore

49. What holds true to Purchase Power Parity Theory?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
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

50. What is the bandwagon effect when looking at form investor psychology ?
Banks stability was measure at a 5% capital adequacy ratio
A common reference
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