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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 nominal exchange rate?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Currency of one country can be exchanged for the currency of another country
Inflation - interest rate - and market psychology

2. What is the first characteristic of lead 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
London - New York - Tokyo - and Singapore
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
An attempt to collect currency receivables early as result of expected depreciation

3. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Monetary and fiscal policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals

4. How do you insure or hedge against a Forex risk?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Forward exchange or spot exchange
Borrowing of funds in foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation

5. What is the second characteristic of lag strategy?
Productivity and balance payments
agreed upon austerity
Delay payables if currency is expected to depreciate
Transportation costs - trade barriers - and not trade inputs such as rents or wages

6. What is a currency swamp?
Spot rates - forward rates - and swaps
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

7. What are the two ways to reduce economic exposure?
Intervention currency (peg country currency)
1. distribute productive assets 2. ensure assets are not concentrated in countries
Establish central control and attempts to forecast future exchange rates
Forward exchange or spot exchange

8. What are the three ways of insuring against a Forex risk?
Firms future international earning power
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates - forward rates - and swaps
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

9. What are some factors that influence 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
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

10. What is the third role of the U.S. dollar outside the U.S.?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Exchange rates are determined by the demand and supply for different currencies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Reserve currency

11. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Delay payables if currency is expected to depreciate
Currency of one country can be exchanged for the currency of another country

12. What is the fifth thing that determines the forex rates?
Exchange rates are determined by the demand and supply for different currencies
It helps them understand the influence of exchange rates on profitability of trade investment deals
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Investor psychology

13. Greece has not defaulted because it has not been able to fully implement its...
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Lending of funds in foreign currencies
agreed upon austerity
Impact of currency exchange rate changes on reported financial statements

14. 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)
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
A common reference

15. What are the characteristics of economic exposure?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Borrowing of funds in foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Forward exchange or spot exchange

16. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
An attempt to collect currency receivables early as result of expected depreciation
Intervention currency (peg country currency)
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

17. How can translation exposure be described?
agreed upon austerity
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Reserve currency
Impact of currency exchange rate changes on reported financial statements

18. What is arbitrage?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Banks stability was measure at a 5% capital adequacy ratio
Borrowing of funds in foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

19. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Exchange rate policies
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

20. Bailout Fund of EFSF - What is this shiz nitz?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

21. What are the important trading centers?
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
London - New York - Tokyo - and Singapore
Forward exchange or spot exchange
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

22. Most Transaction inovolve...
Relative price differences and ppp
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
u.s. dollar
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

23. What are two methods of reducing translation and transaction exposure?
It helps them understand the influence of exchange rates on profitability of trade investment deals
True
Lead and lag strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

24. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Spot rates - forward rates - and swaps

25. How can transaction exposure be described?
Inflation - interest rate - and market psychology
The income form individual transacations
State driven recapitalization are now needed
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

26. What are some characteristics of swaps?
Relative price differences and ppp
It is used to measure how far the nominal exchange rate deviate from the one that would create 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
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

27. What is the first roels of the U.S. dollar outside the U.S.?
Investor psychology
A common reference
Paying foreign currency payable before dues as a result expected currency appreciation
1. distribute productive assets 2. ensure assets are not concentrated in countries

28. What is the real exchange rate?
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)
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Impact of currency exchange rate changes on reported financial statements

29. What is a spot rate?
Delay payables if currency is expected to depreciate
Spot rates and forward rates
Currency of one country can be exchanged for the currency of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

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
Relative price differences and ppp
Lead and lag strategies
True

31. What is the nature of the forex market?
The income form individual transacations
Forward exchange or spot exchange
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
Reserve currency

32. What is the second issue with EFSF?
Goods and services of one country can be exchanged for the goods and services of another country
Productivity and balance payments
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
Group of investors movement in the same direction and same time or government intervention

33. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Spot rates - forward rates - and swaps
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
State driven recapitalization are now needed

34. What are the purposes of fiscal policies?
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
Transaction - translation and economic exposure
Collecting & spending of money by the government
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

35. It is important to stay __________ with your current events
up to date
Spot rates and forward rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The income form individual transacations

36. What are the types of Exchange Rate Fluctuations?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Spot rates and forward rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Monetary and fiscal policies

37. What are the three different types of foreign exchange rate risks?
domino effect
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transaction - translation and economic exposure
Vehicle currency(transaction between 2 less commonly used currencies)

38. How and What is the purpose of distributing assets?
24/7
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies
u.s. dollar

39. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Paying foreign currency payable before dues as a result expected currency appreciation
Intervention currency (peg country currency)

40. Marekts are open...
Exchange rates are determined by the demand and supply for different currencies
domino effect
24/7
Forward exchange or spot exchange

41. What is non convertible currency?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
Increase currency values and protect against increases in foreign prices of goods and services

42. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
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
Transaction - translation and economic exposure
up to date

43. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
State driven recapitalization are now needed
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
domino effect

44. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Exchange rate policies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Interest rates and money supply

45. What is the second characteristic of transaction exposure?
Group of investors movement in the same direction and same time or government intervention
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Vehicle currency(transaction between 2 less commonly used currencies)
Obligations for the purchase or sale of goods and services at previously agreed prices

46. 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

47. What are some strategies for managing forex risk?
Interest rates and money supply
Establish central control and attempts to forecast future exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
24/7

48. According to economic theories of exchage rate determination?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Issue mo good loans so that profits from new business can eat away the losses form the bad
Exchange rates are determined by the demand and supply for different currencies
True

49. What causes big mac prices to vary?
Increase currency values and protect against increases in foreign prices of goods and services
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Banks stability was measure at a 5% capital adequacy ratio
Transportation costs - trade barriers - and not trade inputs such as rents or wages

50. What implications does understanding foreign exchange rates have on managers?
Collecting & spending of money by the government
It helps them understand the influence of exchange rates on profitability of trade investment deals
A common reference
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)