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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.
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 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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Intervention currency (peg country currency)
Spot rates and forward rates

2. According to economic theories of exchage rate determination?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
True
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

3. What is the law of one price?
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
True
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

4. 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
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

5. How and What is the purpose of distributing assets?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Establish central control and attempts to forecast future exchange 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

6. What is the first issue with EFSF?
London - New York - Tokyo - and Singapore
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

7. What is economic exposure?
Firms future international earning power
Impact of currency exchange rate changes on reported financial statements
24/7
Large number of individuals and cos exchange of domestic currencies for a foreign currency

8. Most Transaction inovolve...
Relative price differences and ppp
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
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

9. What is a spot rate?
Collecting & spending of money by the government
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Paying foreign currency payable before dues as a result expected currency appreciation

10. Greece has not defaulted because it has not been able to fully implement its...
domino effect
agreed upon austerity
24/7
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

11. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Exchange rates are determined by the demand and supply for different currencies
24/7
Exchange rate policies
True

12. What is the third role of the U.S. dollar outside the U.S.?
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
Inflation - interest rate - and market psychology
Reserve currency
Monetary and fiscal policies

13. What is the purpose of not concentrating assets in countries?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Spot rates - forward rates - and swaps
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp

14. What are the three different types of foreign exchange rate risks?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Borrowing of funds in foreign currency
Transaction - translation and economic exposure
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

15. What is arbitrage?
An attempt to collect currency receivables early as result of expected depreciation
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
up to date

16. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
London - New York - Tokyo - and Singapore
agreed upon austerity
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

17. What are some characteristics of swaps?
Delay collection of foreign currency receivables if currency is exception to appreciate
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
agreed upon austerity
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

18. What is the first characteristic of transaction exposure ?
Reserve currency
The income form individual transacations
up to date
Affected by fluctuation in foreign exchange values

19. Defaulting on debt has a __________ that intertwines all countries in Europe.
Firms future international earning power
domino effect
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Relative price differences and ppp

20. What are the two ways to quote currency?
Transaction - translation and economic exposure
u.s. dollar
Spot rates and forward rates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

21. What is the nominal exchange rate?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Currency of one country can be exchanged for the currency of another country
Investor psychology

22. How do you establish central control?
Goods and services of one country can be exchanged for the goods and services of another country
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Productivity and balance payments
Delay payables if currency is expected to depreciate

23. What do monetary policies do?
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
Impact of currency exchange rate changes on reported financial statements
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

24. What is non convertible currency?
The income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Paying foreign currency payable before dues as a result expected currency appreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

25. When do countries use foreign exchange market?
The income form individual transacations
Transaction - translation and economic exposure
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
Paying foreign currency payable before dues as a result expected currency appreciation

26. What is hedging?

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27. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Forward exchange or spot exchange
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
True

28. What are the types of Exchange Rate Fluctuations?
Lead and lag strategies
Monetary and fiscal policies
Reserve currency
Delay payables if currency is expected to depreciate

29. What holds true to Purchase Power Parity Theory?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
domino effect

30. Marekts are open...
Intervention currency (peg country currency)
Issue mo good loans so that profits from new business can eat away the losses form the bad
24/7
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

31. Burger economics!!! Why do we use it?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Relative price differences and ppp
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Exchange rate policies

32. What is the second issue with EFSF?
Relative price differences and ppp
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lending of funds in foreign currencies
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

33. What is a currency swamp?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
The income form individual transacations

34. The euro faces risks fo recapitalization?
Impact of currency exchange rate changes on reported financial statements
Banks stability was measure at a 5% capital adequacy ratio
Relative price differences and ppp
Currency of one country can be exchanged for the currency of another country

35. What is the second characteristic of transaction exposure?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Currency of one country can be exchanged for the currency of another country
Productivity and balance payments
Obligations for the purchase or sale of goods and services at previously agreed prices

36. How can translation exposure be described?
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
Impact of currency exchange rate changes on reported financial statements
24/7

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

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38. What is the first roels of the U.S. dollar outside the U.S.?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
24/7
A common reference
Inflation - interest rate - and market psychology

39. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Issue mo good loans so that profits from new business can eat away the losses form the bad
Delay collection of foreign currency receivables if currency is exception to appreciate
Control the amount of money in circulation - enforced by government policies - focus on growth rate

40. 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
London - New York - Tokyo - and Singapore
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates - forward rates - and swaps

41. What are the purposes of fiscal policies?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Inflation - interest rate - and market psychology
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Collecting & spending of money by the government

42. What is the bandwagon effect when looking at form investor psychology ?
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
Monetary and fiscal policies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Group of investors movement in the same direction and same time or government intervention

43. How do you insure or hedge against a Forex risk?
Affected by fluctuation in foreign exchange values
An attempt to collect currency receivables early as result of expected depreciation
Forward exchange or spot exchange
Lead and lag strategies

44. What is a forward rate?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

45. What are the characteristics of economic exposure?
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
Banks stability was measure at a 5% capital adequacy ratio
Transaction - translation and economic exposure
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

46. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
1. distribute productive assets 2. ensure assets are not concentrated in countries
Inflation - interest rate - and market psychology
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

47. What implications does understanding foreign exchange rates have on managers?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Inflation - interest rate - and market psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals

48. What is the first characteristic of lag strategy?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. distribute productive assets 2. ensure assets are not concentrated in countries
Transaction - translation and economic exposure
Delay collection of foreign currency receivables if currency is exception to appreciate

49. What are three factors that impact a country's future exchange rate movements?
Transaction - translation and economic exposure
Firms future international earning power
Inflation - interest rate - and market psychology
Impact of currency exchange rate changes on reported financial statements

50. Bailout Fund of EFSF - What is this shiz nitz?
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
Delay payables if currency is expected to depreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs