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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 implications does understanding foreign exchange rates have on managers?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
Lead and lag strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals

2. When do countries use foreign exchange market?
Increase currency values and protect against increases in foreign prices of goods and services
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
State driven recapitalization are now needed

3. What is the third role of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
Reserve currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

4. 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
Inflation - interest rate - and market psychology
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
up to date

5. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

6. What are some characteristics of swaps?
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
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. 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
London - New York - Tokyo - and Singapore

7. What is the fourth thing that determines the forex rates?
Lending of funds in foreign currencies
24/7
Exchange rate policies
Inflation - interest rate - and market psychology

8. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Issue mo good loans so that profits from new business can eat away the losses form the bad
agreed upon austerity
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

9. 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
Firms future international earning power
Affected by fluctuation in foreign exchange values
Spot rates - forward rates - and swaps

10. How can transaction exposure be described?
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates - forward rates - and swaps
Spot rates and forward rates
The income form individual transacations

11. What is the real exchange rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Goods and services of one country can be exchanged for the goods and services of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

12. What are the types of Exchange Rate Fluctuations?
Increase currency values and protect against increases in foreign prices of goods and services
Reserve currency
Monetary and fiscal policies
Currency of one country can be exchanged for the currency of another country

13. What is the second issue with EFSF?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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

14. What is the first characteristic of transaction exposure ?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Lending of funds in foreign currencies
Affected by fluctuation in foreign exchange values
up to date

15. What is a forward rate?
Currency of one country can be exchanged for the currency 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
Interest rates and money supply
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

16. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
Exchange rates are determined by the demand and supply for different currencies
Monetary and fiscal policies

17. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
The income form individual transacations
Establish central control and attempts to forecast future exchange rates
True

18. No single theory can explain explain the causes the value of currencies to change. True or False?
True
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Control the amount of money in circulation - enforced by government policies - focus on growth rate

19. How and What is the purpose of distributing assets?
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
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

20. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Forward exchange or spot exchange
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

21. What is the third thing that determines the forex rates?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rate policies
Productivity and balance payments
It helps them understand the influence of exchange rates on profitability of trade investment deals

22. What is the bandwagon effect when looking at form investor psychology ?
Measurement of past events
Group of investors movement in the same direction and same time or government intervention
Transaction - translation and economic exposure
domino effect

23. What is the second role of the U.S. dollar outside the U.S. ?
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
Intervention currency (peg country currency)
Relative price differences and ppp
True

24. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Increase currency values and protect against increases in foreign prices of goods and services
London - New York - Tokyo - and Singapore
1. distribute productive assets 2. ensure assets are not concentrated in countries

25. What is capital fight when looking at it form investor psychology?
Investor psychology
Paying foreign currency payable before dues as a result expected currency appreciation
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Banks stability was measure at a 5% capital adequacy ratio

26. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Monetary and fiscal policies

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

28. Bailout Fund of EFSF - What is this shiz nitz?
agreed upon austerity
Investor psychology
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Increase their exposure to banking -'s banking center

29. What are the purposes of fiscal policies?
Paying foreign currency payable before dues as a result expected currency appreciation
Monetary and fiscal policies
True
Collecting & spending of money by the government

30. What is the fifth thing that determines the forex rates?
Investor psychology
Borrowing of funds in foreign 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
agreed upon austerity

31. What are three factors that impact a country's future exchange rate movements?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Inflation - interest rate - and market psychology
Establish central control and attempts to forecast future exchange rates
Obligations for the purchase or sale of goods and services at previously agreed prices

32. It is important to stay __________ with your current events
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Issue mo good loans so that profits from new business can eat away the losses form the bad
domino effect
up to date

33. What is hedging?

34. Greece has not defaulted because it has not been able to fully implement its...
Increase their exposure to banking -'s banking center
The income form individual transacations
Goods and services of one country can be exchanged for the goods and services of another country
agreed upon austerity

35. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
1. distribute productive assets 2. ensure assets are not concentrated in countries
Intervention currency (peg country currency)
Spot rates and forward rates

36. What is the first issue with EFSF?
Lead and lag strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

37. How do you establish central control?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rates are determined by the demand and supply for different currencies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

38. What is the third characteristic of transaction exposure?
Relative price differences and ppp
Paying foreign currency payable before dues as a result expected currency appreciation
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Borrowing of funds in foreign currency

39. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Reserve currency
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
Borrowing of funds in foreign currency

40. What is the purpose of not concentrating assets in countries?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Delay payables if currency is expected to depreciate
Reserve currency
Increase currency values and protect against increases in foreign prices of goods and services

41. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
State driven recapitalization are now needed
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay payables if currency is expected to depreciate
Lending of funds in foreign currencies

42. What is the fourth characteristic of transaction exposure?
True
Lending of funds in foreign currencies
agreed upon austerity
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

43. What is the first characteristic of lag strategy?
Banks stability was measure at a 5% capital adequacy ratio
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Delay collection of foreign currency receivables if currency is exception to appreciate

44. What is the second characteristic of transaction exposure?
State driven recapitalization are now needed
Lead and lag strategies
Obligations for the purchase or sale of goods and services at previously agreed prices
Issue mo good loans so that profits from new business can eat away the losses form the bad

45. What are the first two things that determine Forex rates?
True
Delay payables if currency is expected to depreciate
Relative price differences and ppp
Delay collection of foreign currency receivables if currency is exception to appreciate

46. What is a spot rate?
The income form individual transacations
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

47. 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
agreed upon austerity
up to date
Control the amount of money in circulation - enforced by government policies - focus on growth rate

48. What are the two ways to quote currency?
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
Obligations for the purchase or sale of goods and services at previously agreed prices
Lending of funds in foreign currencies

49. What is the characteristic of translation expose?
Measurement of past events
Establish central control and attempts to forecast future exchange rates
domino effect
up to date

50. What is a currency swamp?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Increase currency values and protect against increases in foreign prices of goods and services
State driven recapitalization are now needed