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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. How do you establish central control?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Inflation - interest rate - and market psychology

2. What is a forward rate?
agreed upon austerity
The income form individual transacations
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

3. What is the second characteristic of transaction exposure?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Investor psychology
Obligations for the purchase or sale of goods and services at previously agreed prices
Relative price differences and ppp

4. When do countries use the foreign exchange market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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

5. What is the first characteristic of lead strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
agreed upon austerity
An attempt to collect currency receivables early as result of expected depreciation
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

6. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Exchange rates are determined by the demand and supply for different currencies
Forward exchange or spot exchange
State driven recapitalization are now needed
Transaction - translation and economic exposure

7. What are other strategies for managing forex risk?
up to date
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Firms future international earning power
Collecting & spending of money by the government

8. What is the real exchange rate?
Exchange rate policies
Goods and services of one country can be exchanged for the goods and services of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Banks stability was measure at a 5% capital adequacy ratio

9. What is the third thing that determines the forex rates?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Forward exchange or spot exchange
Productivity and balance payments
London - New York - Tokyo - and Singapore

10. Most Transaction inovolve...
Lead and lag strategies
u.s. dollar
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

11. What is hedging?

12. The euro faces risks fo recapitalization?
Measurement of past events
Banks stability was measure at a 5% capital adequacy ratio
An attempt to collect currency receivables early as result of expected depreciation
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

13. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
True
Issue mo good loans so that profits from new business can eat away the losses form the bad

14. What do monetary policies do?
Firms future international earning power
24/7
Intervention currency (peg country currency)
Control the amount of money in circulation - enforced by government policies - focus on growth rate

15. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
True
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
Increase currency values and protect against increases in foreign prices of goods and services

16. What is the second issue with EFSF?
Lead and lag strategies
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
Exchange rates are determined by the demand and supply for different currencies
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

17. What are two methods of reducing translation and transaction exposure?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Lead and lag strategies
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

18. Defaulting on debt has a __________ that intertwines all countries in Europe.
Affected by fluctuation in foreign exchange values
domino effect
Impact of currency exchange rate changes on reported financial statements
Establish central control and attempts to forecast future exchange rates

19. What are the three ways of insuring against a Forex 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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Spot rates - forward rates - and swaps
Goods and services of one country can be exchanged for the goods and services of another country

20. It is important to stay __________ with your current events
24/7
Goods and services of one country can be exchanged for the goods and services of another country
up to date
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

21. No single theory can explain explain the causes the value of currencies to change. True or False?
Intervention currency (peg country currency)
Paying foreign currency payable before dues as a result expected currency appreciation
True
Monetary and fiscal policies

22. What holds true to Purchase Power Parity Theory?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Exchange rate policies
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
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

23. What is non convertible currency?
Firms future international earning power
Increase their exposure to banking -'s banking center
An attempt to collect currency receivables early as result of expected depreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

24. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Delay payables if currency is expected to depreciate
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

25. 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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lending of funds in foreign currencies
Currency of one country can be exchanged for the currency of another country

26. How can transaction exposure be described?
Impact of currency exchange rate changes on reported financial statements
Investor psychology
The income form individual transacations
Collecting & spending of money by the government

27. What is the second characteristic of lag strategy?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Delay payables if currency is expected to depreciate
Issue mo good loans so that profits from new business can eat away the losses form the bad
domino effect

28. What is the first issue with EFSF?
A common reference
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
Inflation - interest rate - and market psychology
Spot rates and forward rates

29. What are the characteristics of economic exposure?
State driven recapitalization are now needed
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates - forward rates - and swaps
domino effect

30. What are the three different types of foreign exchange rate risks?
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
Currency of one country can be exchanged for the currency of another country
Transaction - translation and economic exposure
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

31. What is the law of one price?
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
Lending of funds in foreign currencies

32. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Establish central control and attempts to forecast future exchange rates
True

33. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Spot rates - forward rates - and swaps
Lending of funds in foreign currencies
Reserve currency

34. What is capital fight when looking at it form investor psychology?
Intervention currency (peg country currency)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lead and lag strategies

35. What are the first two things that determine Forex rates?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Relative price differences and ppp
Increase their exposure to banking -'s banking center
24/7

36. What is the characteristic of translation expose?
Currency of one country can be exchanged for the currency of another country
Measurement of past events
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates - forward rates - and swaps

37. What are some factors that influence exchange rates?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Investor psychology
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Transaction - translation and economic exposure

38. How do you insure or hedge against a Forex risk?
up to date
Forward exchange or spot exchange
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

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

40. What are three factors that impact a country's future exchange rate movements?
Group of investors movement in the same direction and same time or government intervention
Investor psychology
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Inflation - interest rate - and market psychology

41. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Exchange rates are determined by the demand and supply for different currencies
Borrowing of funds in foreign currency
Interest rates and money supply

42. 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. 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
Paying foreign currency payable before dues as a result expected currency appreciation

43. What is economic exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Spot rates - forward rates - and swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power

44. What is the second characteristic of lead strategy?
True
Vehicle currency(transaction between 2 less commonly used currencies)
Paying foreign currency payable before dues as a result expected currency appreciation
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

45. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by fluctuation in foreign exchange values
Paying foreign currency payable before dues as a result expected currency appreciation

46. What is the nature of the forex market?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Goods and services of one country can be exchanged for the goods and services of another country
Increase currency values and protect against increases in foreign prices of goods and services
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

47. What are the two ways to quote currency?
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
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates and forward rates

48. What is the first characteristic of lag strategy?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
Obligations for the purchase or sale of goods and services at previously agreed prices
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

49. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

50. What are the important trading centers?
Paying foreign currency payable before dues as a result expected currency appreciation
Delay collection of foreign currency receivables if currency is exception to appreciate
London - New York - Tokyo - and Singapore
Impact of currency exchange rate changes on reported financial statements