Test your basic knowledge |

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 are the important trading centers?
London - New York - Tokyo - and Singapore
State driven recapitalization are now needed
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Transaction - translation and economic exposure

2. What is the second characteristic of transaction exposure?
Relative price differences and ppp
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Intervention currency (peg country currency)
Obligations for the purchase or sale of goods and services at previously agreed prices

3. What are other strategies for managing forex risk?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
domino effect
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

4. What is the nature of the forex market?
up to date
Intervention currency (peg country currency)
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

5. What causes big mac prices to vary?
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
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

6. What are the two ways to quote currency?
London - New York - Tokyo - and Singapore
Increase their exposure to banking -'s banking center
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Spot rates and forward rates

7. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Affected by fluctuation in foreign exchange values
Currency of one country can be exchanged for the currency of another country
Transaction - translation and economic exposure

8. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Reserve currency
Affected by fluctuation in foreign exchange values
Issue mo good loans so that profits from new business can eat away the losses form the bad
u.s. dollar

9. What is the first characteristic of lag strategy?
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Intervention currency (peg country currency)
Delay collection of foreign currency receivables if currency is exception to appreciate

10. What holds true to Purchase Power Parity Theory?
Currency of one country can be exchanged for the currency of another country
Exchange rates are determined by the demand and supply for different currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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

11. How can transaction exposure be described?
The income form individual transacations
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
An attempt to collect currency receivables early as result of expected depreciation
Large number of individuals and cos exchange of domestic currencies for a foreign currency

12. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Investor psychology
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Forward exchange or spot exchange

13. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
Increase their exposure to banking -'s banking center
State driven recapitalization are now needed

14. The euro faces risks fo recapitalization?
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
Banks stability was measure at a 5% capital adequacy ratio
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The income form individual transacations

15. What implications does understanding foreign exchange rates have on managers?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Large number of individuals and cos exchange of domestic currencies for a foreign currency
u.s. dollar

16. Greece has not defaulted because it has not been able to fully implement its...
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
agreed upon austerity
domino effect

17. Bailout Fund of EFSF - What is this shiz nitz?
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates - forward rates - and swaps
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Banks stability was measure at a 5% capital adequacy ratio

18. What is the nominal exchange rate?
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
Currency of one country can be exchanged for the currency of another country
Delay collection of foreign currency receivables if currency is exception to appreciate

19. Most Transaction inovolve...
Inflation - interest rate - and market psychology
u.s. dollar
Increase currency values and protect against increases in foreign prices of goods and services
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

20. It is important to stay __________ with your current events
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply
True
up to date

21. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Borrowing of funds in foreign currency

22. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
up to date
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

23. What are the first two things that determine Forex 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
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
Collecting & spending of money by the government
Relative price differences and ppp

24. How do you establish central control?
agreed upon austerity
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
u.s. dollar
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

25. What are the three different types of foreign exchange rate risks?
Spot rates and forward rates
Vehicle currency(transaction between 2 less commonly used currencies)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transaction - translation and economic exposure

26. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies

27. 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
Transaction - translation and economic exposure
Relative price differences and ppp
Lead and lag strategies

28. When do countries use foreign exchange market?
Productivity and balance payments
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Intervention currency (peg country currency)

29. Marekts are open...
agreed upon austerity
24/7
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

30. What is the second role of the U.S. dollar outside the U.S. ?
Measurement of past events
Intervention currency (peg country currency)
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

31. What is a spot rate?
Group of investors movement in the same direction and same time or government intervention
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
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

32. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies
Inflation - interest rate - and market psychology
Vehicle currency(transaction between 2 less commonly used currencies)

33. What is the first issue with EFSF?
Impact of currency exchange rate changes on reported financial statements
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
Productivity and balance payments

34. What are some strategies for managing forex risk?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
Establish central control and attempts to forecast future exchange rates
Paying foreign currency payable before dues as a result expected currency appreciation

35. What is the first roels of the U.S. dollar outside the U.S.?
Productivity and balance payments
A common reference
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Control the amount of money in circulation - enforced by government policies - focus on growth rate

36. 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
Spot rates and forward rates
Collecting & spending of money by the government
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

37. What is the fourth roles of the U.S. dollar outside the U.S.?
Paying foreign currency payable before dues as a result expected currency appreciation
Vehicle currency(transaction between 2 less commonly used currencies)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

38. What do monetary policies do?
Spot rates and forward rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Impact of currency exchange rate changes on reported financial statements
Control the amount of money in circulation - enforced by government policies - focus on growth rate

39. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Exchange rate policies
Relative price differences and ppp
True
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

40. What is the second characteristic of lag strategy?
Increase currency values and protect against increases in foreign prices of goods and services
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)
Group of investors movement in the same direction and same time or government intervention

41. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Obligations for the purchase or sale of goods and services at previously agreed prices
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

42. What is the fourth characteristic of transaction exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Lending of funds in foreign currencies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

43. What are three factors that impact a country's future exchange rate movements?
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
State driven recapitalization are now needed
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

44. What is the bandwagon effect when looking at form investor psychology ?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Borrowing of funds in foreign currency
Affected by fluctuation in foreign exchange values
Group of investors movement in the same direction and same time or government intervention

45. What is the fourth thing that determines the forex rates?
Investor psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rate policies

46. What is the second issue with EFSF?
Affected by fluctuation in foreign exchange values
True
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. 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 is the fifth thing that determines the forex rates?
Investor psychology
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
Inflation - interest rate - and market psychology

48. What is hedging?

49. What is the third characteristic of transaction exposure?
Paying foreign currency payable before dues as a result expected currency appreciation
domino effect
It helps them understand the influence of exchange rates on profitability of trade investment deals
Borrowing of funds in foreign currency

50. What is the first characteristic of lead strategy?
Goods and services of one country can be exchanged for the goods and services of another country
An attempt to collect currency receivables early as result of expected depreciation
Banks stability was measure at a 5% capital adequacy ratio
Affected by fluctuation in foreign exchange values