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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 the law of one price?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Forward exchange or spot exchange
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

2. How and What is the purpose of distributing assets?
24/7
Exchange rates are determined by the demand and supply for different currencies
London - New York - Tokyo - and Singapore
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

3. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Currency of one country can be exchanged for the currency of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

4. What is the second characteristic of transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
domino effect
Reserve currency
Obligations for the purchase or sale of goods and services at previously agreed prices

5. What is the fourth characteristic of transaction exposure?
Affected by fluctuation in foreign exchange values
Lending of funds in foreign currencies
Establish central control and attempts to forecast future exchange rates
Banks stability was measure at a 5% capital adequacy ratio

6. 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
Measurement of past events
1. distribute productive assets 2. ensure assets are not concentrated in countries

7. What is capital fight when looking at it form investor psychology?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lead and lag strategies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

8. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Transaction - translation and economic exposure
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

9. Bailout Fund of EFSF - What is this shiz nitz?
Intervention currency (peg country currency)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Productivity and balance payments

10. What are the two ways to reduce economic exposure?
Firms future international earning power
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates - forward rates - and swaps

11. The euro faces risks fo recapitalization?
An attempt to collect currency receivables early as result of expected depreciation
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)
Borrowing of funds in foreign currency

12. Defaulting on debt has a __________ that intertwines all countries in Europe.
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Increase their exposure to banking -'s banking center
domino effect
Large number of individuals and cos exchange of domestic currencies for a foreign currency

13. What is the second thing that determines the Forex rates?
Interest rates and money supply
agreed upon austerity
u.s. dollar
Banks stability was measure at a 5% capital adequacy ratio

14. No single theory can explain explain the causes the value of currencies to change. True or False?
24/7
Vehicle currency(transaction between 2 less commonly used currencies)
True
Group of investors movement in the same direction and same time or government intervention

15. What is the second characteristic of lead strategy?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Paying foreign currency payable before dues as a result expected currency appreciation

16. When do countries use the foreign exchange market?
Interest rates and money supply
Impact of currency exchange rate changes on reported financial statements
Transaction - translation and economic exposure
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

17. What is the first characteristic of lag strategy?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
Delay collection of foreign currency receivables if currency is exception to appreciate
Collecting & spending of money by the government

18. 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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Firms future international earning power

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

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20. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase their exposure to banking -'s banking center

21. What is a spot rate?
A common reference
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Firms future international earning power

22. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
London - New York - Tokyo - and Singapore
Banks stability was measure at a 5% capital adequacy ratio
Vehicle currency(transaction between 2 less commonly used currencies)

23. What are the three different types of foreign exchange rate risks?
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
Transaction - translation and economic exposure
Banks stability was measure at a 5% capital adequacy ratio
Paying foreign currency payable before dues as a result expected currency appreciation

24. What is the second role of the U.S. dollar outside the U.S. ?
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 is used to measure how far the nominal exchange rate deviate from the one that would create PPP
State driven recapitalization are now needed
Intervention currency (peg country currency)

25. What is the real exchange rate?
Paying foreign currency payable before dues as a result expected currency appreciation
Obligations for the purchase or sale of goods and services at previously agreed prices
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Goods and services of one country can be exchanged for the goods and services of another country

26. What is hedging?

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27. What are some factors that influence exchange rates?
up to date
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Exchange rate policies
Banks stability was measure at a 5% capital adequacy ratio

28. What do monetary policies do?
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Collecting & spending of money by the government
Delay payables if currency is expected to depreciate

29. What are the first two things that determine Forex rates?
Impact of currency exchange rate changes on reported financial statements
Issue mo good loans so that profits from new business can eat away the losses form the bad
Relative price differences and ppp
Spot rates - forward rates - and swaps

30. 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
Banks stability was measure at a 5% capital adequacy ratio
up to date
Reserve currency

31. How can translation exposure be described?
A common reference
Impact of currency exchange rate changes on reported financial statements
Firms future international earning power
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

32. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
Lending of funds in foreign currencies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

33. 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
Affected by fluctuation in foreign exchange values
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore

34. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
True

35. Most Transaction inovolve...
u.s. dollar
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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

36. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
A common reference
Impact of currency exchange rate changes on reported financial statements

37. How can transaction exposure be described?
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 income form individual transacations
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Control the amount of money in circulation - enforced by government policies - focus on growth rate

38. What are some characteristics of swaps?
Vehicle currency(transaction between 2 less commonly used 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
Monetary and fiscal policies
Lending of funds in foreign currencies

39. What is the first characteristic of transaction exposure ?
Exchange rate policies
Affected by fluctuation in foreign exchange values
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 non convertible currency?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Establish central control and attempts to forecast future exchange rates

41. What are two methods of reducing translation and transaction exposure?
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
Lead and lag strategies
agreed upon austerity

42. What is the second characteristic of lag strategy?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Delay payables if currency is expected to depreciate
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
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

43. What are some strategies for managing forex risk?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Establish central control and attempts to forecast future exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
London - New York - Tokyo - and Singapore

44. What are the three ways of insuring against a Forex risk?
Collecting & spending of money by the government
Spot rates - forward rates - and swaps
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
Reserve currency

45. What is the first characteristic of lead strategy?
Monetary and fiscal policies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
An attempt to collect currency receivables early as result of expected depreciation
Lead and lag strategies

46. What is the bandwagon effect when looking at form investor psychology ?
An attempt to collect currency receivables early as result of expected depreciation
Group of investors movement in the same direction and same time or government intervention
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Increase currency values and protect against increases in foreign prices of goods and services

47. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Reserve currency
Interest rates and money supply
up to date
State driven recapitalization are now needed

48. What is economic exposure?
Firms future international earning power
Productivity and balance payments
Increase currency values and protect against increases in foreign prices of goods and services
Paying foreign currency payable before dues as a result expected currency appreciation

49. What is externally convertible currency
Exchange rate policies
Reserve currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
up to date

50. According to economic theories of exchage rate determination?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rates are determined by the demand and supply for different currencies
An attempt to collect currency receivables early as result of expected depreciation
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency