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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. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates
Intervention currency (peg country currency)
London - New York - Tokyo - and Singapore

2. What is the real exchange rate?
Inflation - interest rate - and market psychology
Spot rates - forward rates - and swaps
Goods and services of one country can be exchanged for the goods and services of another country
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

3. What is the first roels of the U.S. dollar outside the U.S.?
Affected by fluctuation in foreign exchange values
A common reference
agreed upon austerity
Intervention currency (peg country currency)

4. What are some characteristics of swaps?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lead and lag strategies

5. What is the first characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

6. What is economic exposure?
24/7
Firms future international earning power
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by fluctuation in foreign exchange values

7. What is the fifth thing that determines the forex rates?
Currency of one country can be exchanged for the currency of another country
Investor psychology
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)

8. How can translation exposure be described?
Large number of individuals and cos exchange of domestic currencies for a 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
Impact of currency exchange rate changes on reported financial statements
Borrowing of funds in foreign currency

9. What is the nominal exchange rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Vehicle currency(transaction between 2 less commonly used currencies)
Impact of currency exchange rate changes on reported financial statements
Currency of one country can be exchanged for the currency of another country

10. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Inflation - interest rate - and market psychology

11. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Interest rates and money supply
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
24/7

12. Marekts are open...
Impact of currency exchange rate changes on reported financial statements
Investor psychology
24/7
A common reference

13. What is the fourth thing that determines the forex rates?
The income form individual transacations
An attempt to collect currency receivables early as result of expected depreciation
Exchange rate policies
up to date

14. What is the second thing that determines the Forex rates?
Reserve currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
u.s. dollar
Interest rates and money supply

15. What are the important trading centers?
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
London - New York - Tokyo - and Singapore
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

16. What are the purposes of fiscal policies?
Intervention currency (peg country currency)
Collecting & spending of money by the government
Monetary and fiscal policies
domino effect

17. What is a spot rate?
Lead and lag strategies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
An attempt to collect currency receivables early as result of expected depreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

18. What are three factors that impact a country's future exchange rate movements?
The income form individual transacations
Inflation - interest rate - and market 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
Investor psychology

19. Most Transaction inovolve...
Delay payables if currency is expected to depreciate
u.s. dollar
Large number of individuals and cos exchange of domestic currencies for a foreign currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

20. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
domino effect
Transaction - translation and economic exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

21. What are the two ways to quote currency?
Spot rates and forward rates
Paying foreign currency payable before dues as a result expected currency appreciation
State driven recapitalization are now needed
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

22. How and What is the purpose of distributing assets?
Spot rates and forward rates
Relative price differences and ppp
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies

23. What is the third characteristic of transaction exposure?
24/7
Borrowing of funds in foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)
Delay payables if currency is expected to depreciate

24. It is important to stay __________ with your current events
Issue mo good loans so that profits from new business can eat away the losses form the bad
up to date
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

25. What is the bandwagon effect when looking at form investor psychology ?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Interest rates and money supply
Reserve currency
Group of investors movement in the same direction and same time or government intervention

26. What is capital fight when looking at it form investor psychology?
Reserve currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

27. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Large number of individuals and cos exchange of domestic currencies for a foreign currency
True
Delay collection of foreign currency receivables if currency is exception to appreciate
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

28. The euro faces risks fo recapitalization?
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
A common reference
u.s. dollar
Banks stability was measure at a 5% capital adequacy ratio

29. What causes big mac prices to vary?
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Firms future international earning power

30. What is the second characteristic of lag strategy?
Establish central control and attempts to forecast future exchange rates
Delay payables if currency is expected to depreciate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Transaction - translation and economic exposure

31. What is a currency swamp?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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. protect resources efficiently 2. ensure correct mix of tactics and strategies

32. 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
A common reference
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Increase currency values and protect against increases in foreign prices of goods and services

33. 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

34. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
State driven recapitalization are now needed
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries

35. Greece has not defaulted because it has not been able to fully implement its...
Transportation costs - trade barriers - and not trade inputs such as rents or wages
agreed upon austerity
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

36. What is the second characteristic of lead strategy?
domino effect
Paying foreign currency payable before dues as a result expected currency appreciation
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Borrowing of funds in foreign currency

37. 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
Spot rates and forward rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

38. What is the fourth roles of the U.S. dollar outside the U.S.?
24/7
Group of investors movement in the same direction and same time or government intervention
Lending of funds in foreign currencies
Vehicle currency(transaction between 2 less commonly used currencies)

39. What are the types of Exchange Rate Fluctuations?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Establish central control and attempts to forecast future exchange rates
Monetary and fiscal policies
Lead and lag strategies

40. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Productivity and balance payments
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Exchange rates are determined by the demand and supply for different currencies

41. How can transaction exposure be described?
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 income form individual transacations
Transaction - translation and economic exposure
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 issue with EFSF?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Establish central control and attempts to forecast future exchange rates

43. What are the three different types of foreign exchange rate risks?
Measurement of past events
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
State driven recapitalization are now needed
Transaction - translation and economic exposure

44. What is the purpose of not concentrating assets in countries?
Transaction - translation and economic exposure
Increase currency values and protect against increases in foreign prices of goods and services
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps

45. How do you establish central control?
A common reference
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
24/7

46. What is free convertible currency?
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
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

47. What is the fourth characteristic of transaction exposure?
Group of investors movement in the same direction and same time or government intervention
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
Lending of funds in foreign currencies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

48. Burger economics!!! Why do we use it?
Lending of funds in foreign currencies
up to date
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Transaction - translation and economic exposure

49. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Interest rates and money supply
State driven recapitalization are now needed
Banks stability was measure at a 5% capital adequacy ratio

50. What holds true to Purchase Power Parity Theory?
True
Transaction - translation and economic exposure
Lending of funds in foreign currencies
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