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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 free convertible currency?
An attempt to collect currency receivables early as result of expected depreciation
Vehicle currency(transaction between 2 less commonly used currencies)
The income form individual transacations
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

2. What is a forward rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps
Inflation - interest rate - and market psychology

3. Bailout Fund of EFSF - What is this shiz nitz?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Monetary and fiscal policies
Establish central control and attempts to forecast future exchange rates

4. How and What is the purpose of distributing assets?
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
Lead and lag strategies
The income form individual transacations
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

5. When do countries use the foreign exchange market?
A common reference
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Transaction - translation and economic exposure

6. What implications does understanding foreign exchange rates have on managers?
domino effect
agreed upon austerity
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 helps them understand the influence of exchange rates on profitability of trade investment deals

7. How do you establish central control?
Investor psychology
Intervention currency (peg country currency)
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

8. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Borrowing of funds in foreign currency
London - New York - Tokyo - and Singapore
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

9. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Increase their exposure to banking -'s banking center
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

10. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
domino effect
Goods and services of one country can be exchanged for the goods and services of another country

11. 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
Increase their exposure to banking -'s banking center
agreed upon austerity
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

12. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
True
Inflation - interest rate - and market psychology
Impact of currency exchange rate changes on reported financial statements

13. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Increase their exposure to banking -'s banking center
Obligations for the purchase or sale of goods and services at previously agreed prices
Investor psychology

14. How can translation exposure be described?
domino effect
Impact of currency exchange rate changes on reported financial statements
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Collecting & spending of money by the government

15. What is the first characteristic of transaction exposure ?
Banks stability was measure at a 5% capital adequacy ratio
Paying foreign currency payable before dues as a result expected currency appreciation
An attempt to collect currency receivables early as result of expected depreciation
Affected by fluctuation in foreign exchange values

16. What is the nature of the forex market?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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
Delay payables if currency is expected to depreciate

17. What is the second role of the U.S. dollar outside the U.S. ?
Lending of funds in foreign currencies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
True
Intervention currency (peg country currency)

18. What is the third role of the U.S. dollar outside the U.S.?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Reserve currency
Productivity and balance payments
Monetary and fiscal policies

19. What is the fourth thing that determines the forex rates?
Exchange rate policies
Productivity and balance payments
Establish central control and attempts to forecast future exchange rates
True

20. What is externally convertible currency
Collecting & spending of money by the government
Measurement of past events
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Delay payables if currency is expected to depreciate

21. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
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
Delay payables if currency is expected to depreciate

22. What is the purpose of not concentrating assets in countries?
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
Relative price differences and ppp
Increase currency values and protect against increases in foreign prices of goods and services
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

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

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24. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
The income form individual transacations
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Currency of one country can be exchanged for the currency of another country
True

25. What are the two ways to reduce economic exposure?
Intervention currency (peg country currency)
1. distribute productive assets 2. ensure assets are not concentrated in countries
Impact of currency exchange rate changes on reported financial statements
Currency of one country can be exchanged for the currency of another country

26. What is the first roels of the U.S. dollar outside the U.S.?
24/7
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference

27. How can transaction exposure be described?
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
The income form individual transacations
Spot rates and forward rates
It helps them understand the influence of exchange rates on profitability of trade investment deals

28. What are the important trading centers?
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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
True
London - New York - Tokyo - and Singapore

29. What are the two ways to quote currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a 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.
Spot rates and forward rates
Delay collection of foreign currency receivables if currency is exception to appreciate

30. 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
Vehicle currency(transaction between 2 less commonly used currencies)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date

31. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Investor psychology
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

32. 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
Lending of funds in foreign currencies
An attempt to collect currency receivables early as result of expected depreciation
Relative price differences and ppp

33. What are the characteristics of economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates and forward 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
A common reference

34. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Intervention currency (peg country currency)
Banks stability was measure at a 5% capital adequacy ratio
Vehicle currency(transaction between 2 less commonly used currencies)

35. It is important to stay __________ with your current events
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
up to date
Reserve currency
True

36. What are the first two things that determine Forex rates?
Relative price differences and ppp
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Exchange rates are determined by the demand and supply for different currencies
u.s. dollar

37. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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 income form individual transacations

38. What do monetary policies do?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Delay payables if currency is expected to depreciate
Control the amount of money in circulation - enforced by government policies - focus on growth rate

39. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a 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.

40. What are three factors that impact a country's future exchange rate movements?
Measurement of past events
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Inflation - interest rate - and market psychology
Goods and services of one country can be exchanged for the goods and services of another country

41. What is the fourth roles of the U.S. dollar outside the U.S.?
up to date
Vehicle currency(transaction between 2 less commonly used currencies)
Productivity and balance payments
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

42. What is arbitrage?
Lead and lag strategies
up to date
Affected by fluctuation in foreign exchange values
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

43. What is the second characteristic of lag strategy?
Affected by fluctuation in foreign exchange values
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay payables if currency is expected to depreciate

44. What are the types of Exchange Rate Fluctuations?
Delay collection of foreign currency receivables if currency is exception to appreciate
Transaction - translation and economic exposure
Monetary and fiscal policies
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

45. 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
Collecting & spending of money by the government
Paying foreign currency payable before dues as a result expected currency appreciation
Exchange rates are determined by the demand and supply for different currencies

46. What are some strategies for managing forex risk?
Group of investors movement in the same direction and same time or government intervention
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The income form individual transacations
Establish central control and attempts to forecast future exchange rates

47. Burger economics!!! Why do we use it?
Paying foreign currency payable before dues as a result expected currency appreciation
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
London - New York - Tokyo - and Singapore
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

48. What is economic exposure?
Increase their exposure to banking -'s banking center
Lending of funds in foreign currencies
Firms future international earning power
State driven recapitalization are now needed

49. Most Transaction inovolve...
Spot rates and forward rates
u.s. dollar
Affected by fluctuation in foreign exchange values
agreed upon austerity

50. What is hedging?

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