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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. How can translation exposure be described?
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
Impact of currency exchange rate changes on reported financial statements
Group of investors movement in the same direction and same time or government intervention

2. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Issue mo good loans so that profits from new business can eat away the losses form the bad
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

3. What are some characteristics of swaps?
Increase currency values and protect against increases in foreign prices of goods and services
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
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. Burger economics!!! Why do we use it?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Spot rates and forward rates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

5. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Lending of funds in foreign currencies
Interest rates and money supply
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

6. 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
24/7
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
up to date

7. What is the first issue with EFSF?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. distribute productive assets 2. ensure assets are not concentrated in countries
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. 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

8. Greece has not defaulted because it has not been able to fully implement its...
Relative price differences and ppp
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
agreed upon austerity

9. 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
Delay payables if currency is expected to depreciate
Inflation - interest rate - and market psychology
Interest rates and money supply

10. What are three factors that impact a country's future exchange rate movements?
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
Inflation - interest rate - and market psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency

11. How can transaction exposure be described?
u.s. dollar
Intervention currency (peg country currency)
The income form individual transacations
True

12. What is the purpose of not concentrating assets in countries?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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 exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase currency values and protect against increases in foreign prices of goods and services

13. What are the important trading centers?
London - New York - Tokyo - and Singapore
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
Reserve currency

14. 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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Collecting & spending of money by the government
Investor psychology

15. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Impact of currency exchange rate changes on reported financial statements
Firms future international earning power
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

16. What is economic exposure?
up to date
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Firms future international earning power
Delay collection of foreign currency receivables if currency is exception to appreciate

17. What are the three different types of foreign exchange rate risks?
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
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
Transaction - translation and economic exposure
Banks stability was measure at a 5% capital adequacy ratio

18. What is the second characteristic of lead strategy?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Paying foreign currency payable before dues as a result expected currency appreciation
Lead and lag strategies
u.s. dollar

19. What is the third characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
It helps them understand the influence of exchange rates on profitability of trade investment deals
Borrowing of funds in foreign 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

20. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
Inflation - interest rate - and market psychology

21. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Productivity and balance payments
Increase their exposure to banking -'s banking center
Vehicle currency(transaction between 2 less commonly used currencies)

22. Marekts are open...
Spot rates - forward rates - and swaps
Inflation - interest rate - and market psychology
up to date
24/7

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

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24. The euro faces risks fo recapitalization?
Spot rates - forward rates - and swaps
The income form individual transacations
Banks stability was measure at a 5% capital adequacy ratio
Control the amount of money in circulation - enforced by government policies - focus on growth rate

25. What is the second issue with EFSF?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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. 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
Productivity and balance payments

26. What is the fifth thing that determines the forex rates?
True
Investor psychology
Spot rates - forward rates - and swaps
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

27. What is non convertible currency?
Delay payables if currency is expected to depreciate
Banks stability was measure at a 5% capital adequacy ratio
Productivity and balance payments
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

28. What is the fourth roles of the U.S. dollar outside the U.S.?
Exchange rate 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
Vehicle currency(transaction between 2 less commonly used currencies)
domino effect

29. What is a currency swamp?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Group of investors movement in the same direction and same time or government intervention
Spot rates and forward rates

30. What are the first two things that determine Forex rates?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Relative price differences and ppp
Firms future international earning power
Intervention currency (peg country currency)

31. What is the second thing that determines the Forex rates?
Interest rates and money supply
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Delay collection of foreign currency receivables if currency is exception to appreciate

32. What are the types of Exchange Rate Fluctuations?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Monetary and fiscal policies
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
Interest rates and money supply

33. What is the nominal exchange rate?
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
agreed upon austerity
An attempt to collect currency receivables early as result of expected depreciation

34. What are the characteristics of economic exposure?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Obligations for the purchase or sale of goods and services at previously agreed prices
A common reference
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

35. How do you insure or hedge against a Forex risk?
domino effect
Forward exchange or spot exchange
Paying foreign currency payable before dues as a result expected currency appreciation
Delay collection of foreign currency receivables if currency is exception to appreciate

36. How do you establish central control?
Firms future international earning power
Intervention currency (peg country currency)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Affected by fluctuation in foreign exchange values

37. What causes big mac prices to vary?
Measurement of past events
Goods and services of one country can be exchanged for the goods and services of another country
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages

38. What is the second role of the U.S. dollar outside the U.S. ?
Currency of one country can be exchanged for the currency of another country
Intervention currency (peg country currency)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
u.s. dollar

39. What are the two ways to quote currency?
Spot rates and forward rates
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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

40. What is arbitrage?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
The income form individual transacations
1. distribute productive assets 2. ensure assets are not concentrated in countries

41. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

42. What is the second characteristic of lag strategy?
Goods and services of one country can be exchanged for the goods and services of another country
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay payables if currency is expected to depreciate
Banks stability was measure at a 5% capital adequacy ratio

43. What is hedging?

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44. When do countries use the foreign exchange market?
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
Exchange rates are determined by the demand and supply for different currencies
Inflation - interest rate - and market psychology
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 are other strategies for managing forex risk?
Exchange rate policies
Goods and services of one country can be exchanged for the goods and services of another country
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Investor psychology

46. What do monetary policies do?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Inflation - interest rate - and market psychology
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Productivity and balance payments

47. What is the first roels of the U.S. dollar outside the U.S.?
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
Transaction - translation and economic exposure
A common reference

48. What is the fourth characteristic of transaction exposure?
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
u.s. dollar
State driven recapitalization are now needed
Lending of funds in foreign currencies

49. What is the first characteristic of lead strategy?
Lending of funds in foreign currencies
An attempt to collect currency receivables early as result of expected depreciation
Exchange rates are determined by the demand and supply for different currencies
Establish central control and attempts to forecast future exchange rates

50. Defaulting on debt has a __________ that intertwines all countries in Europe.
An attempt to collect currency receivables early as result of expected depreciation
Delay collection of foreign currency receivables if currency is exception to appreciate
Lead and lag strategies
domino effect