Test your basic knowledge |

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. What is the law of one price?
Impact of currency exchange rate changes on reported financial statements
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
u.s. dollar

2. What are some factors that influence exchange rates?
Group of investors movement in the same direction and same time or government intervention
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Intervention currency (peg country currency)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Paying foreign currency payable before dues as a result expected currency appreciation
Exchange rates are determined by the demand and supply for different currencies

4. What are the types of Exchange Rate Fluctuations?
up to date
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Monetary and fiscal policies
Increase currency values and protect against increases in foreign prices of goods and services

5. How can transaction exposure be described?
Firms future international earning power
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
Transaction - translation and economic exposure
The income form individual transacations

6. What is economic exposure?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power
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
Exchange rates are determined by the demand and supply for different currencies

7. What are other strategies for managing forex risk?
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.
Paying foreign currency payable before dues as a result expected currency appreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

8. What are some strategies for managing forex risk?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Establish central control and attempts to forecast future exchange rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

9. How can translation exposure be described?
Lead and lag strategies
Transaction - translation and economic exposure
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Impact of currency exchange rate changes on reported financial statements

10. What are the purposes of fiscal policies?
Banks stability was measure at a 5% capital adequacy ratio
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Lead and lag strategies
Collecting & spending of money by the government

11. What is capital fight when looking at it form investor psychology?
Increase currency values and protect against increases in foreign prices of goods and services
London - New York - Tokyo - and Singapore
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

12. What is a currency swamp?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Obligations for the purchase or sale of goods and services at previously agreed prices
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

13. What is the third characteristic of transaction exposure?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Productivity and balance payments

14. What is non convertible currency?
The income form individual transacations
Banks stability was measure at a 5% capital adequacy ratio
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

15. When do countries use the foreign exchange market?
Intervention currency (peg country currency)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Monetary and fiscal policies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

16. What is the second issue with EFSF?
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Monetary and fiscal policies
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 is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Measurement of past events
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

18. What is the fourth roles of the U.S. dollar outside the U.S.?
Paying foreign currency payable before dues as a result expected currency appreciation
Vehicle currency(transaction between 2 less commonly used currencies)
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

19. What do monetary policies do?
up to date
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Borrowing of funds in foreign currency

20. What is the real exchange rate?
Delay collection of foreign currency receivables if currency is exception to appreciate
Goods and services of one country can be exchanged for the goods and services of another country
Delay payables if currency is expected to depreciate
1. distribute productive assets 2. ensure assets are not concentrated in countries

21. What is externally convertible currency
Lending of funds in foreign currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
True

22. What is the second role of the U.S. dollar outside the U.S. ?
Productivity and balance payments
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
Intervention currency (peg country 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

23. What is a forward rate?
Lead and lag strategies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Collecting & spending of money by the government
An attempt to collect currency receivables early as result of expected depreciation

24. No single theory can explain explain the causes the value of currencies to change. True or False?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
True
Currency of one country can be exchanged for the currency of another country
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

25. What is the first characteristic of lead strategy?
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
Establish central control and attempts to forecast future exchange rates
Reserve currency
An attempt to collect currency receivables early as result of expected depreciation

26. 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
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

27. What are three factors that impact a country's future exchange rate movements?
24/7
Vehicle currency(transaction between 2 less commonly used currencies)
Inflation - interest rate - and market psychology
It helps them understand the influence of exchange rates on profitability of trade investment deals

28. What is the second characteristic of transaction exposure?
Lending of funds in foreign currencies
Obligations for the purchase or sale of goods and services at previously agreed prices
Reserve currency
Measurement of past events

29. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
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)
Control the amount of money in circulation - enforced by government policies - focus on growth rate

30. What are the two ways to quote currency?
Inflation - interest rate - and market psychology
Establish central control and attempts to forecast future exchange rates
Spot rates and forward rates
Issue mo good loans so that profits from new business can eat away the losses form the bad

31. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Banks stability was measure at a 5% capital adequacy ratio
Issue mo good loans so that profits from new business can eat away the losses form the bad

32. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Exchange rate policies
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth rate

33. It is important to stay __________ with your current events
up to date
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

34. What is the second characteristic of lag strategy?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Measurement of past events
Impact of currency exchange rate changes on reported financial statements
Delay payables if currency is expected to depreciate

35. Bailout Fund of EFSF - What is this shiz nitz?
Investor psychology
True
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

36. Most Transaction inovolve...
It helps them understand the influence of exchange rates on profitability of trade investment deals
u.s. dollar
Group of investors movement in the same direction and same time or government intervention
Lead and lag strategies

37. What is the characteristic of translation expose?
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
Interest rates and money supply
Measurement of past events

38. What is arbitrage?
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

39. What is the first issue with EFSF?
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
Investor psychology
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
Transaction - translation and economic exposure

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

41. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Reserve 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

42. What are some characteristics of swaps?
Monetary and fiscal 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
agreed upon austerity
Collecting & spending of money by the government

43. How and What is the purpose of distributing assets?
Banks stability was measure at a 5% capital adequacy ratio
Lead and lag strategies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

44. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Lending of funds in foreign currencies
Relative price differences and ppp

45. What is the nature of the forex market?
Establish central control and attempts to forecast future exchange rates
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

46. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Banks stability was measure at a 5% capital adequacy ratio
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
State driven recapitalization are now needed
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

47. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
up to date
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
Impact of currency exchange rate changes on reported financial statements

48. What is the first roels of the U.S. dollar outside the U.S.?
Reserve currency
A common reference
Relative price differences and ppp
agreed upon austerity

49. What causes big mac prices to vary?
24/7
up to date
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Impact of currency exchange rate changes on reported financial statements

50. What implications does understanding foreign exchange rates have on managers?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Productivity and balance payments
It helps them understand the influence of exchange rates on profitability of trade investment deals
Supply & demand of the currency -Interest rates -Inflation -Investor expectations