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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 some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

2. When do countries use foreign exchange market?
Lending of funds in foreign currencies
Reserve currency
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
Productivity and balance payments

3. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
Lending of funds in foreign currencies

4. What is the fourth thing that determines the forex rates?
Obligations for the purchase or sale of goods and services at previously agreed prices
Exchange rate policies
Increase currency values and protect against increases in foreign prices of goods and services
A common reference

5. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. distribute productive assets 2. ensure assets are not concentrated in countries
Currency of one country can be exchanged for the currency of another country
True

6. What is externally convertible currency
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
agreed upon austerity
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

7. What is non convertible currency?
up to date
Issue mo good loans so that profits from new business can eat away the losses form the bad
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay payables if currency is expected to depreciate

8. What is the fourth characteristic of transaction exposure?
Transaction - translation and economic exposure
Goods and services of one country can be exchanged for the goods and services of another country
Lending of funds in foreign currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate

9. What are the first two things that determine Forex rates?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Interest rates and money supply
Relative price differences and ppp
Group of investors movement in the same direction and same time or government intervention

10. What are the important trading centers?
London - New York - Tokyo - and Singapore
1. distribute productive assets 2. ensure assets are not concentrated in countries
Establish central control and attempts to forecast future exchange rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

11. How and What is the purpose of distributing assets?
Spot rates - forward rates - and swaps
agreed upon austerity
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Borrowing of funds in foreign currency

12. What is the law of one price?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Impact of currency exchange rate changes on reported financial statements
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
Vehicle currency(transaction between 2 less commonly used currencies)

13. How can transaction exposure be described?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The income form individual transacations
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

14. What is arbitrage?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
up to date
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

15. What do monetary policies do?
Lending of funds in foreign currencies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Affected by fluctuation in foreign exchange values

16. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Collecting & spending of money by the government
up to date
Delay payables if currency is expected to depreciate

17. What are some characteristics of swaps?
Goods and services of one country can be exchanged for the goods and services of another country
Collecting & spending of money by the government
True
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

18. What is the first characteristic of transaction exposure ?
Impact of currency exchange rate changes on reported financial statements
Interest rates and money supply
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by fluctuation in foreign exchange values

19. What is the second characteristic of lag strategy?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Collecting & spending of money by the government
The income form individual transacations
Delay payables if currency is expected to depreciate

20. What are some strategies for managing forex risk?
Increase currency values and protect against increases in foreign prices of goods and services
Collecting & spending of money by the government
Establish central control and attempts to forecast future exchange rates
Productivity and balance payments

21. Most Transaction inovolve...
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Relative price differences and ppp
u.s. dollar

22. Bailout Fund of EFSF - What is this shiz nitz?
Reserve currency
Delay collection of foreign currency receivables if currency is exception to appreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Increase currency values and protect against increases in foreign prices of goods and services

23. What is the first issue with EFSF?
Exchange rates are determined by the demand and supply for different currencies
Transaction - translation and economic exposure
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

24. What is capital fight when looking at it form investor psychology?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power

25. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
It helps them understand the influence of exchange rates on profitability of trade investment deals
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

26. What is the fourth roles of the U.S. dollar outside the U.S.?
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.
Group of investors movement in the same direction and same time or government intervention
Affected by fluctuation in foreign exchange values

27. 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
An attempt to collect currency receivables early as result of expected depreciation
Relative price differences and ppp
Exchange rate policies

28. What is the second characteristic of lead strategy?
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
up to date
Interest rates and money supply
Paying foreign currency payable before dues as a result expected currency appreciation

29. It is important to stay __________ with your current events
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
up to date

30. What is a forward rate?
agreed upon austerity
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rate policies

31. What is the purpose of not concentrating assets in countries?
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
Reserve currency

32. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values
Impact of currency exchange rate changes on reported financial statements

33. What is the first characteristic of lead strategy?
Collecting & spending of money by the government
Spot rates and forward rates
An attempt to collect currency receivables early as result of expected depreciation
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

34. What is free convertible currency?
up to date
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency

35. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
Collecting & spending of money by the government

36. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Lending of funds in foreign currencies
Intervention currency (peg country currency)
Exchange rates are determined by the demand and supply for different currencies

37. What is the first characteristic of lag strategy?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Goods and services of one country can be exchanged for the goods and services of another country
Delay collection of foreign currency receivables if currency is exception to appreciate
Group of investors movement in the same direction and same time or government intervention

38. What is the second thing that determines the Forex rates?
Collecting & spending of money by the government
Inflation - interest rate - and market psychology
Interest rates and money supply
It helps them understand the influence of exchange rates on profitability of trade investment deals

39. 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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It helps them understand the influence of exchange rates on profitability of trade investment deals
Delay collection of foreign currency receivables if currency is exception to appreciate

40. What are other strategies for managing forex risk?
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

41. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Lending of funds in foreign currencies

42. What is the second issue with EFSF?
Productivity and balance payments
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
Group of investors movement in the same direction and same time or government intervention
Collecting & spending of money by the government

43. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
up to date
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
An attempt to collect currency receivables early as result of expected depreciation

44. What are the three different types of foreign exchange rate risks?
Group of investors movement in the same direction and same time or government intervention
Large number of individuals and cos exchange of domestic currencies for a foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Transaction - translation and economic exposure

45. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Relative price differences and ppp
Inflation - interest rate - and market psychology
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

46. What are the characteristics of economic exposure?
Spot rates and forward rates
Lending of funds in foreign currencies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country

47. No single theory can explain explain the causes the value of currencies to change. True or False?
True
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
London - New York - Tokyo - and Singapore
Relative price differences and ppp

48. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rates are determined by the demand and supply for different currencies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

49. Burger economics!!! Why do we use it?
Increase currency values and protect against increases in foreign prices of goods and services
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
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

50. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Borrowing of funds in foreign currency
Increase their exposure to banking -'s banking center
Lead and lag strategies