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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 are the two ways to quote currency?
Spot rates and forward rates
Reserve currency
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore

2. What is the nature of the forex market?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Currency of one country can be exchanged for the currency of another country

3. How can translation exposure be described?
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
24/7

4. What are the first two things that determine Forex rates?
Relative price differences and ppp
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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
Banks stability was measure at a 5% capital adequacy ratio

5. What is a spot rate?
Paying foreign currency payable before dues as a result expected currency appreciation
Establish central control and attempts to forecast future exchange rates
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

6. What is the fifth thing that determines the forex rates?
Obligations for the purchase or sale of goods and services at previously agreed prices
Investor psychology
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

7. What is the first characteristic of lead strategy?
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
An attempt to collect currency receivables early as result of expected depreciation
domino effect

8. Most Transaction inovolve...
u.s. dollar
up to date
Lead and lag strategies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

9. How and What is the purpose of distributing assets?
Spot rates - forward rates - and swaps
Increase their exposure to banking -'s banking center
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Increase currency values and protect against increases in foreign prices of goods and services

10. What is capital fight when looking at it form investor psychology?
Transaction - translation and economic exposure
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Spot rates - forward rates - and swaps

11. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values
Increase their exposure to banking -'s banking center
Relative price differences and ppp

12. What is the first issue with EFSF?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Reserve currency
Productivity and balance payments
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

13. What are two methods of reducing translation and transaction exposure?
True
Exchange rates are determined by the demand and supply for different currencies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies

14. How do you establish central control?
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
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

15. What is the second thing that determines the Forex rates?
Interest rates and money supply
Intervention currency (peg country currency)
Spot rates - forward rates - and swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals

16. It is important to stay __________ with your current events
Exchange rates are determined by the demand and supply for different currencies
up to date
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Large number of individuals and cos exchange of domestic currencies for a foreign currency

17. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
Increase currency values and protect against increases in foreign prices of goods and services
State driven recapitalization are now needed
Obligations for the purchase or sale of goods and services at previously agreed prices

18. What are some characteristics of swaps?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency 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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The income form individual transacations

19. What is the nominal exchange rate?
Reserve currency
Currency of one country can be exchanged for the currency of another country
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
Transaction - translation and economic exposure

20. What are the types of Exchange Rate Fluctuations?
Exchange rates are determined by the demand and supply for different currencies
Exchange rate 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
Monetary and fiscal policies

21. What are the three different types of foreign exchange rate risks?
u.s. dollar
Lending of funds in foreign currencies
Transaction - translation and economic exposure
up to date

22. What is hedging?

23. What is the second role of the U.S. dollar outside the U.S. ?
Firms future international earning power
Intervention currency (peg country currency)
Interest rates and money supply
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

24. What is the real exchange rate?
24/7
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Goods and services of one country can be exchanged for the goods and services of another country
Exchange rates are determined by the demand and supply for different currencies

25. What are three factors that impact a country's future exchange rate movements?
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
Spot rates and forward rates
Inflation - interest rate - and market psychology
Firms future international earning power

26. Bailout Fund of EFSF - What is this shiz nitz?
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
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
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

27. 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
Inflation - interest rate - and market psychology
Firms future international earning power
Borrowing of funds in foreign currency

28. What are some strategies for managing forex risk?
Goods and services of one country can be exchanged for the goods and services of another country
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Establish central control and attempts to forecast future exchange rates
u.s. dollar

29. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Vehicle currency(transaction between 2 less commonly used currencies)
Forward exchange or spot exchange
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

30. What is a forward rate?
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

31. What is the law of one price?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
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

32. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Increase currency values and protect against increases in foreign prices of goods and services
u.s. dollar
True
Increase their exposure to banking -'s banking center

33. What causes big mac prices to vary?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate

34. 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
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
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

35. What is the purpose of not concentrating assets in countries?
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
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

36. What is the fourth thing that determines the forex rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rate policies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Delay collection of foreign currency receivables if currency is exception to appreciate

37. What is the fourth roles of the U.S. dollar outside the U.S.?
Increase their exposure to banking -'s banking center
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
24/7
Vehicle currency(transaction between 2 less commonly used currencies)

38. Burger economics!!! Why do we use it?
Goods and services of one country can be exchanged for the goods and services of another country
up to date
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

39. What is the first characteristic of lag strategy?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
24/7
Delay collection of foreign currency receivables if currency is exception to appreciate
Issue mo good loans so that profits from new business can eat away the losses form the bad

40. Greece has not defaulted because it has not been able to fully implement its...
Affected by fluctuation in foreign exchange values
Intervention currency (peg country currency)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
agreed upon austerity

41. What is the first characteristic of transaction exposure ?
Goods and services of one country can be exchanged for the goods and services of another country
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 fluctuation in foreign exchange values
Relative price differences and ppp

42. When do countries use the foreign exchange market?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates - forward rates - and swaps
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
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 arbitrage?
London - New York - Tokyo - and Singapore
Banks stability was measure at a 5% capital adequacy ratio
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

44. What are the important trading centers?
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
Relative price differences and ppp
London - New York - Tokyo - and Singapore
Lending of funds in foreign currencies

45. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
State driven recapitalization are now needed
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

46. How can transaction exposure be described?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The income form individual transacations
Collecting & spending of money by the government
Delay collection of foreign currency receivables if currency is exception to appreciate

47. No single theory can explain explain the causes the value of currencies to change. True or False?
True
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
Increase their exposure to banking -'s banking center

48. When do countries use foreign exchange market?
Increase currency values and protect against increases in foreign prices of goods and services
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

49. What are the two ways to reduce economic exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Exchange rate policies

50. What are other strategies for managing forex risk?
Measurement of past events
Borrowing of funds in foreign currency
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