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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.
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. When do countries use the foreign exchange market?
agreed upon austerity
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True

2. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Delay payables if currency is expected to depreciate
It helps them understand the influence of exchange rates on profitability of trade investment deals
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

3. What is the second characteristic of lag strategy?
Intervention currency (peg country currency)
Increase currency values and protect against increases in foreign prices of goods and services
Delay payables if currency is expected to depreciate
Lending of funds in foreign currencies

4. What is the first characteristic of transaction exposure ?
Firms future international earning power
Affected by fluctuation in foreign exchange values
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore

5. What is the law of one price?
Establish central control and attempts to forecast future exchange rates
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
Investor psychology
Issue mo good loans so that profits from new business can eat away the losses form the bad

6. What is the first roels of the U.S. dollar outside the U.S.?
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.
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
Impact of currency exchange rate changes on reported financial statements

7. Defaulting on debt has a __________ that intertwines all countries in Europe.
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
domino effect
Interest rates and money supply
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

8. What is the fifth thing that determines the forex rates?
Establish central control and attempts to forecast future exchange rates
Forward exchange or spot exchange
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Investor psychology

9. What is free convertible currency?
Currency of one country can be exchanged for the currency of another country
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

10. What are the two ways to quote currency?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates and forward rates
True
Borrowing of funds in foreign currency

11. What is externally convertible currency
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
A common reference

12. What is the second characteristic of lead strategy?
Measurement of past events
1. distribute productive assets 2. ensure assets are not concentrated in countries
Paying foreign currency payable before dues as a result expected currency appreciation
Banks stability was measure at a 5% capital adequacy ratio

13. What are the two ways to reduce economic exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
True
1. distribute productive assets 2. ensure assets are not concentrated in countries
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

14. What are some characteristics of swaps?
Firms future international earning power
Exchange rate policies
Spot rates - forward rates - and 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

15. What is the fourth thing that determines the forex rates?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Exchange rate policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)

16. What is a currency swamp?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
u.s. dollar
Interest rates and money supply

17. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Transaction - translation and economic exposure
Spot rates and forward rates
Currency of one country can be exchanged for the currency of another country

18. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
domino effect
Increase currency values and protect against increases in foreign prices of goods and services
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

19. It is important to stay __________ with your current events
Inflation - interest rate - and market psychology
Lending of funds in foreign currencies
up to date
Forward exchange or spot exchange

20. What is the first issue with EFSF?
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
Collecting & spending of money by the government
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

21. What is the second role of the U.S. dollar outside the U.S. ?
Collecting & spending of money by the government
London - New York - Tokyo - and Singapore
Establish central control and attempts to forecast future exchange rates
Intervention currency (peg country currency)

22. The euro faces risks fo recapitalization?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Banks stability was measure at a 5% capital adequacy ratio
Lead and lag strategies
Measurement of past events

23. According to economic theories of exchage rate determination?
24/7
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

24. Greece has not defaulted because it has not been able to fully implement its...
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Lending of funds in foreign currencies
agreed upon austerity
Measurement of past events

25. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Reserve currency
Investor psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

26. No single theory can explain explain the causes the value of currencies to change. True or False?
Spot rates and forward rates
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
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

27. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Intervention currency (peg country currency)
Affected by fluctuation in foreign exchange values

28. Most Transaction inovolve...
Group of investors movement in the same direction and same time or government intervention
u.s. dollar
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Large number of individuals and cos exchange of domestic currencies for a foreign currency

29. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
agreed upon austerity
Transportation costs - trade barriers - and not trade inputs such as rents or wages

30. 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
Measurement of past events
Monetary and fiscal policies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

31. What is the real exchange 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
Goods and services of one country can be exchanged for the goods and services of another country
agreed upon austerity
Transportation costs - trade barriers - and not trade inputs such as rents or wages

32. What is the characteristic of translation expose?
Measurement of past events
agreed upon austerity
Delay collection of foreign currency receivables if currency is exception to appreciate
True

33. When do countries use foreign exchange market?
True
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
Interest rates and money supply
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

34. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
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
Currency of one country can be exchanged for the currency of another country

35. Marekts are open...
Obligations for the purchase or sale of goods and services at previously agreed prices
agreed upon austerity
Establish central control and attempts to forecast future exchange rates
24/7

36. 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
True

37. How do you establish central control?
Increase their exposure to banking -'s banking center
Relative price differences and ppp
Establish central control and attempts to forecast future exchange rates
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

38. How can transaction exposure be described?
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies
Increase their exposure to banking -'s banking center
Lending of funds in foreign currencies

39. What is arbitrage?
agreed upon austerity
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates - forward rates - and swaps
London - New York - Tokyo - and Singapore

40. What holds true to Purchase Power Parity Theory?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Increase currency values and protect against increases in foreign prices of goods and services
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

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

42. What is the third thing that determines the forex rates?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The income form individual transacations
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Productivity and balance payments

43. What is the second thing that determines the Forex rates?
Investor psychology
Obligations for the purchase or sale of goods and services at previously agreed prices
Currency of one country can be exchanged for the currency of another country
Interest rates and money supply

44. What do monetary policies do?
Obligations for the purchase or sale of goods and services at previously agreed prices
Currency of one country can be exchanged for the currency of another country
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

45. What is economic exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Collecting & spending of money by the government
Firms future international earning power

46. What is a spot rate?
Borrowing of funds in foreign currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Productivity and balance payments

47. What is capital fight when looking at it form investor psychology?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency

48. What is the third characteristic of transaction exposure?
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Obligations for the purchase or sale of goods and services at previously agreed prices

49. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Currency of one country can be exchanged for the currency of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

50. How and What is the purpose of distributing assets?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Interest rates and money supply
An attempt to collect currency receivables early as result of expected depreciation
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates