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Foreign Exchange Market

Subjects : business-skills, industries

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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. Burger economics!!! Why do we use it?
Collecting & spending of money by the government
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
London - New York - Tokyo - and Singapore

2. 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.
Delay payables if currency is expected to depreciate
Vehicle currency(transaction between 2 less commonly used currencies)
Control the amount of money in circulation - enforced by government policies - focus on growth rate

3. 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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay collection of foreign currency receivables if currency is exception to appreciate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

4. What implications does understanding foreign exchange rates have on managers?
Productivity and balance payments
domino effect
It helps them understand the influence of exchange rates on profitability of trade investment deals
Goods and services of one country can be exchanged for the goods and services of another country

5. What is the second characteristic of transaction exposure?
True
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Productivity and balance payments
Obligations for the purchase or sale of goods and services at previously agreed prices

6. What are three factors that impact a country's future exchange rate movements?
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
Productivity and balance payments
Transaction - translation and economic exposure
Inflation - interest rate - and market psychology

7. How do you establish central control?
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Borrowing of funds in foreign currency
Productivity and balance payments

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

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9. What is arbitrage?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
An attempt to collect currency receivables early as result of expected depreciation
Currency of one country can be exchanged for the currency of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

10. 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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Delay payables if currency is expected to depreciate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

11. Greece has not defaulted because it has not been able to fully implement its...
Obligations for the purchase or sale of goods and services at previously agreed prices
True
agreed upon austerity
Group of investors movement in the same direction and same time or government intervention

12. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
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
Intervention currency (peg country currency)

13. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

14. Most Transaction inovolve...
Productivity and balance payments
u.s. dollar
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 rate policies

15. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
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
agreed upon austerity

16. What is non convertible currency?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rates are determined by the demand and supply for different currencies

17. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

18. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Reserve currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

19. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Increase currency values and protect against increases in foreign prices of goods and services
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
True
Lead and lag strategies

20. What is the second issue with EFSF?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Currency of one country can be exchanged for the currency of another country
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

21. What is the third thing that determines the forex rates?
domino effect
Delay payables if currency is expected to depreciate
Productivity and balance payments
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

22. 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
Firms future international earning power
Intervention currency (peg country currency)
Spot rates and forward rates

23. When do countries use foreign exchange market?
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
up to date
Currency of one country can be exchanged for the currency of another country
Group of investors movement in the same direction and same time or government intervention

24. 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
u.s. dollar
domino effect
Increase currency values and protect against increases in foreign prices of goods and services

25. Bailout Fund of EFSF - What is this shiz nitz?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

26. What is the third characteristic of transaction exposure?
Exchange rates are determined by the demand and supply for different currencies
Borrowing of funds in 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

27. What are two methods of reducing translation and transaction exposure?
Paying foreign currency payable before dues as a result expected currency appreciation
Transaction - translation and economic exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lead and lag strategies

28. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
The income form individual transacations
Establish central control and attempts to forecast future exchange rates
agreed upon austerity

29. What is the characteristic of translation expose?
The income form individual transacations
Measurement of past events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Investor psychology

30. The euro faces risks fo recapitalization?
Affected by fluctuation in foreign exchange values
Banks stability was measure at a 5% capital adequacy ratio
Transaction - translation and economic exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals

31. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Lending of funds in foreign currencies
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

32. No single theory can explain explain the causes the value of currencies to change. True or False?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
True
Reserve currency

33. What is externally convertible currency
Lending of funds in foreign currencies
Collecting & spending of money by the government
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
A common reference

34. What do monetary policies do?
Borrowing of funds in foreign currency
True
Vehicle currency(transaction between 2 less commonly used currencies)
Control the amount of money in circulation - enforced by government policies - focus on growth rate

35. How can transaction exposure be described?
domino effect
Forward exchange or spot exchange
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

36. What is a forward rate?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
An attempt to collect currency receivables early as result of expected depreciation
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rates are determined by the demand and supply for different currencies

37. What is free convertible currency?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

38. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

39. What are other strategies for managing forex risk?
Relative price differences and ppp
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

40. Marekts are open...
Inflation - interest rate - and market psychology
Exchange rates are determined by the demand and supply for different currencies
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
24/7

41. What is the fifth thing that determines the forex rates?
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
agreed upon austerity
Investor psychology
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

42. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Vehicle currency(transaction between 2 less commonly used currencies)
Transaction - translation and economic exposure

43. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
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
Vehicle currency(transaction between 2 less commonly used currencies)

44. What are the important trading centers?
Lending of funds in foreign currencies
Banks stability was measure at a 5% capital adequacy ratio
London - New York - Tokyo - and Singapore
up to date

45. What is the second characteristic of lag strategy?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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 payables if currency is expected to depreciate
State driven recapitalization are now needed

46. How can translation exposure be described?
Exchange rates are determined by the demand and supply for different currencies
Impact of currency exchange rate changes on reported financial statements
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Intervention currency (peg country currency)

47. What is the law of one price?
Interest rates and money supply
1. distribute productive assets 2. ensure assets are not concentrated in countries
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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

48. What are the first two things that determine Forex rates?
Spot rates and forward rates
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
Relative price differences and ppp
Delay payables if currency is expected to depreciate

49. What are some characteristics of swaps?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
u.s. dollar
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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

50. What causes big mac prices to vary?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

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Foreign Exchange Market

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