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

2. What is capital fight when looking at it form investor psychology?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
A common reference
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Large number of individuals and cos exchange of domestic currencies for a foreign currency

3. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
1. distribute productive assets 2. ensure assets are not concentrated in countries

4. What is the third characteristic of transaction exposure?
Collecting & spending of money by the government
Borrowing of funds in foreign currency
agreed upon austerity
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

5. 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
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

6. What is non convertible currency?
Productivity and balance payments
Spot rates - forward rates - and swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

7. What is the third role of the U.S. dollar outside the U.S.?
Relative price differences and ppp
Inflation - interest rate - and market psychology
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

8. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Exchange rate policies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

9. No single theory can explain explain the causes the value of currencies to change. True or False?
Paying foreign currency payable before dues as a result expected currency appreciation
True
Spot rates and forward 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

10. What is free convertible currency?
Firms future international earning power
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Increase currency values and protect against increases in foreign prices of goods and services
True

11. What is the bandwagon effect when looking at form investor psychology ?
Delay payables if currency is expected to depreciate
Group of investors movement in the same direction and same time or government intervention
Spot rates and forward rates
An attempt to collect currency receivables early as result of expected depreciation

12. 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
True
Spot rates and forward rates
Measurement of past events

13. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Investor psychology
Issue mo good loans so that profits from new business can eat away the losses form the bad

14. 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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Interest rates and money supply
Lead and lag strategies

15. What are the first two things that determine Forex rates?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
It helps them understand the influence of exchange rates on profitability of trade investment deals
Relative price differences and ppp
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

16. What is hedging?

17. What are the types of Exchange Rate Fluctuations?
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
Spot rates - forward rates - and swaps
Exchange rate policies
Monetary and fiscal policies

18. The euro faces risks fo recapitalization?
Establish central control and attempts to forecast future exchange rates
Banks stability was measure at a 5% capital adequacy ratio
Spot rates - forward rates - and swaps
Lending of funds in foreign currencies

19. What is a forward rate?
24/7
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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 exchange rate between 2 currencies;future delievery in 30/60/90/180 days

20. What is the nature of the forex market?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Currency of one country can be exchanged for the currency of another country
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
Exchange rate policies

21. What is arbitrage?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Lead and lag strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

22. What is the second characteristic of lead strategy?
True
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates - forward rates - and swaps
Relative price differences and ppp

23. What is the fourth 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
London - New York - Tokyo - and Singapore
Exchange rate policies
u.s. dollar

24. What is the characteristic of translation expose?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Measurement of past events
Lending of funds in foreign currencies

25. What are the important trading centers?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
agreed upon austerity
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
London - New York - Tokyo - and Singapore

26. Marekts are open...
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
Spot rates - forward rates - and swaps
24/7
Relative price differences and ppp

27. It is important to stay __________ with your current events
London - New York - Tokyo - and Singapore
Transaction - translation and economic exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
up to date

28. What is the second characteristic of lag strategy?
24/7
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Delay payables if currency is expected to depreciate
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

29. What are some strategies for managing forex risk?
Group of investors movement in the same direction and same time or government intervention
Obligations for the purchase or sale of goods and services at previously agreed prices
1. distribute productive assets 2. ensure assets are not concentrated in countries
Establish central control and attempts to forecast future exchange rates

30. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Spot rates and forward rates
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

31. What are the three ways of insuring against a Forex risk?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Relative price differences and ppp
Spot rates - forward rates - and swaps

32. What are the purposes of fiscal policies?
It helps them understand the influence of exchange rates on profitability of trade investment deals
State driven recapitalization are now needed
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Collecting & spending of money by the government

33. What are three factors that impact a country's future exchange rate movements?
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
An attempt to collect currency receivables early as result of expected depreciation
Inflation - interest rate - and market psychology
Reserve currency

34. What is the fourth characteristic of transaction exposure?
Delay payables if currency is expected to depreciate
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
Lending of funds in foreign currencies

35. Most Transaction inovolve...
Collecting & spending of money by the government
Establish central control and attempts to forecast future exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
u.s. dollar

36. What are two methods of reducing translation and transaction exposure?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Banks stability was measure at a 5% capital adequacy ratio
Lead and lag strategies
Transportation costs - trade barriers - and not trade inputs such as rents or wages

37. What do monetary policies do?
Vehicle currency(transaction between 2 less commonly used currencies)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

38. What are some characteristics of swaps?
Delay collection of foreign currency receivables if currency is exception to appreciate
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
Increase currency values and protect against increases in foreign prices of goods and services
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

39. What is the second issue with EFSF?
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
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
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

40. Defaulting on debt has a __________ that intertwines all countries in Europe.
A common reference
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
domino effect

41. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
State driven recapitalization are now needed
Control the amount of money in circulation - enforced by government policies - focus on growth rate

42. How do you establish central control?
Firms future international earning power
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Borrowing of funds in foreign currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

43. What is the second characteristic of transaction exposure?
Productivity and balance payments
Transaction - translation and economic exposure
Obligations for the purchase or sale of goods and services at previously agreed prices
Group of investors movement in the same direction and same time or government intervention

44. What are the three different types of foreign exchange rate risks?
Interest rates and money supply
Transaction - translation and economic exposure
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

45. What is a spot rate?
Lead and lag strategies
Impact of currency exchange rate changes on reported financial statements
True
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

46. What is the real exchange rate?
Paying foreign currency payable before dues as a result expected currency appreciation
24/7
Increase currency values and protect against increases in foreign prices of goods and services
Goods and services of one country can be exchanged for the goods and services of another country

47. What is the first characteristic of lag strategy?
up to date
Delay collection of foreign currency receivables if currency is exception to appreciate
Productivity and balance payments
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

48. What is the first issue with EFSF?
A common reference
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

49. According to economic theories of exchage rate determination?
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
Firms future international earning power
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

50. What is the law of one price?
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
domino effect
1. distribute productive assets 2. ensure assets are not concentrated in countries
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)