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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. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Forward exchange or spot exchange
True
Collecting & spending of money by the government

2. Burger economics!!! Why do we use it?
Intervention currency (peg country currency)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

3. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates - forward rates - and swaps
Borrowing of funds in foreign currency
agreed upon austerity

4. What is externally convertible 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
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
Relative price differences and ppp

5. Most Transaction inovolve...
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
domino effect

6. 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
domino effect
A common reference
Borrowing of funds in foreign currency

7. Marekts are open...
Transaction - translation and economic exposure
24/7
u.s. dollar
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

8. What causes big mac prices to vary?
Interest rates and money supply
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Increase currency values and protect against increases in foreign prices of goods and services
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

9. 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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
domino effect
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

10. It is important to stay __________ with your current events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Relative price differences and ppp
1. distribute productive assets 2. ensure assets are not concentrated in countries
up to date

11. How do you establish central control?
Exchange rate policies
Lending of funds in foreign currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

12. What is the nominal exchange rate?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Reserve currency
Currency of one country can be exchanged for the currency of another country
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

13. What are the purposes of fiscal policies?
Interest rates and money supply
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
Firms future international earning power
Collecting & spending of money by the government

14. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
24/7
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

15. How and What is the purpose of distributing assets?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Interest rates and money supply
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by fluctuation in foreign exchange values

16. What is the real exchange rate?
Obligations for the purchase or sale of goods and services at previously agreed prices
Banks stability was measure at a 5% capital adequacy ratio
Goods and services of one country can be exchanged for the goods and services of another country
Delay collection of foreign currency receivables if currency is exception to appreciate

17. What is the second role of the U.S. dollar outside the U.S. ?
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
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
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country

18. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Transaction - translation and economic exposure
Collecting & spending of money by the government
An attempt to collect currency receivables early as result of expected depreciation

19. What is arbitrage?
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

20. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Transaction - translation and economic exposure
London - New York - Tokyo - and Singapore

21. What are the two ways to reduce economic exposure?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Exchange rates are determined by the demand and supply for different currencies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Delay collection of foreign currency receivables if currency is exception to appreciate

22. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates and forward rates
An attempt to collect currency receivables early as result of expected depreciation
Reserve currency

23. What is the second thing that determines the Forex rates?
Interest rates and money supply
Increase currency values and protect against increases in foreign prices of goods and services
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

24. The euro faces risks fo recapitalization?
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
Goods and services of one country can be exchanged for the goods and services of another country
Borrowing of funds in foreign currency
Banks stability was measure at a 5% capital adequacy ratio

25. What is the first issue with EFSF?
Monetary and 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
London - New York - Tokyo - and Singapore
Delay collection of foreign currency receivables if currency is exception to appreciate

26. What is the second issue with EFSF?
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
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

27. What are the characteristics of economic exposure?
Inflation - interest rate - and market psychology
Affected by fluctuation in foreign exchange values
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

28. What is the law of one price?
Relative price differences and ppp
Increase their exposure to banking -'s banking center
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
Currency of one country can be exchanged for the currency of another country

29. 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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)
Forward exchange or spot exchange

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

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31. What are the three ways of insuring against a Forex risk?
True
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. distribute productive assets 2. ensure assets are not concentrated in countries

32. What is hedging?

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33. What is the characteristic of translation expose?
Exchange rates are determined by the demand and supply for different currencies
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events
Lead and lag strategies

34. When do countries use the 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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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.

35. What is the fifth thing that determines the forex 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
Investor psychology
A common reference
Collecting & spending of money by the government

36. No single theory can explain explain the causes the value of currencies to change. True or False?
24/7
Issue mo good loans so that profits from new business can eat away the losses form the bad
True
Affected by fluctuation in foreign exchange values

37. What are the types of Exchange Rate Fluctuations?
An attempt to collect currency receivables early as result of expected depreciation
Banks stability was measure at a 5% capital adequacy ratio
Obligations for the purchase or sale of goods and services at previously agreed prices
Monetary and fiscal policies

38. What holds true to Purchase Power Parity Theory?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Exchange rate policies
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. 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

39. What are the important trading centers?
u.s. dollar
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore
Transaction - translation and economic exposure

40. What is the third thing that determines the forex 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 exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Productivity and balance payments
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

41. What do monetary policies do?
Vehicle currency(transaction between 2 less commonly used currencies)
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
up to date

42. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Increase currency values and protect against increases in foreign prices of goods and services
London - New York - Tokyo - and Singapore
Lending of funds in foreign currencies

43. Greece has not defaulted because it has not been able to fully implement its...
A common reference
Productivity and balance payments
agreed upon austerity
Spot rates - forward rates - and swaps

44. What are some characteristics of swaps?
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
An attempt to collect currency receivables early as result of expected depreciation
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
Reserve currency

45. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Forward exchange or spot exchange
Affected by fluctuation in foreign exchange values
u.s. dollar

46. What is a spot rate?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Exchange rates are determined by the demand and supply for different currencies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
up to date

47. How do you insure or hedge against a Forex risk?
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
Forward exchange or spot exchange
Delay collection of foreign currency receivables if currency is exception to appreciate
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

48. 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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Affected by fluctuation in foreign exchange values
Reserve currency

49. What is the second characteristic of lead strategy?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Monetary and 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
Paying foreign currency payable before dues as a result expected currency appreciation

50. What is the third characteristic of transaction exposure?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Borrowing of funds in foreign currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

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Foreign Exchange Market

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