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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. Marekts are open...
Productivity and balance payments
Obligations for the purchase or sale of goods and services at previously agreed prices
24/7
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

2. The euro faces risks fo recapitalization?
Spot rates and forward rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Banks stability was measure at a 5% capital adequacy ratio
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

3. What are the three different types of foreign exchange rate risks?
Firms future international earning power
Increase currency values and protect against increases in foreign prices of goods and services
Transaction - translation and economic exposure
Affected by fluctuation in foreign exchange values

4. What is free convertible currency?
Measurement of past events
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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

5. How can transaction exposure be described?
The income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency
Intervention currency (peg country currency)

6. What causes big mac prices to vary?
Spot rates - forward rates - and swaps
True
Monetary and fiscal policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages

7. What are the characteristics of economic exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Impact of currency exchange rate changes on reported financial statements
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

8. What is the fifth thing that determines the forex rates?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Investor psychology

9. What are other strategies for managing forex risk?
State driven recapitalization are now needed
Collecting & spending of money by the government
Currency of one country can be exchanged for the currency of another country
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

10. What are three factors that impact a country's future exchange rate movements?
Exchange rate policies
Inflation - interest rate - and market psychology
domino effect
True

11. What are the two ways to quote currency?
Spot rates and forward rates
Delay payables if currency is expected to depreciate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Obligations for the purchase or sale of goods and services at previously agreed prices

12. What are the first two things that determine Forex rates?
Banks stability was measure at a 5% capital adequacy ratio
It helps them understand the influence of exchange rates on profitability of trade investment deals
Relative price differences and ppp
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

13. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in 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
Measurement of past events
True

14. What is the bandwagon effect when looking at form investor psychology ?
Increase their exposure to banking -'s banking center
Exchange rates are determined by the demand and supply for different currencies
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
Group of investors movement in the same direction and same time or government intervention

15. What is the law of one price?
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
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
State driven recapitalization are now needed

16. What is the third thing that determines the forex rates?
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Exchange rate policies

17. What is the first characteristic of transaction exposure ?
Group of investors movement in the same direction and same time or government intervention
Affected by fluctuation in foreign exchange values
State driven recapitalization are now needed
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. According to economic theories of exchage rate determination?
Vehicle currency(transaction between 2 less commonly used currencies)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rates are determined by the demand and supply for different currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

19. What is the second characteristic of lead strategy?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Collecting & spending of money by the government
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

20. What is the nature of the forex market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
A common reference
Measurement of past events
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

21. Defaulting on debt has a __________ that intertwines all countries in Europe.
Vehicle currency(transaction between 2 less commonly used currencies)
Productivity and balance payments
domino effect
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

22. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
The income form individual transacations
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Lending of funds in foreign currencies

23. Burger economics!!! Why do we use it?
Spot rates - forward rates - and swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
24/7
True

24. When do countries use foreign exchange market?
A common reference
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

25. Greece has not defaulted because it has not been able to fully implement its...
Delay payables if currency is expected to depreciate
agreed upon austerity
Monetary and fiscal policies
Forward exchange or spot exchange

26. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Obligations for the purchase or sale of goods and services at previously agreed prices

27. What is the second characteristic of lag strategy?
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay payables if currency is expected to depreciate

28. What is the fourth characteristic of transaction exposure?
Lead and lag strategies
True
Group of investors movement in the same direction and same time or government intervention
Lending of funds in foreign currencies

29. What is the first characteristic of lag strategy?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rates are determined by the demand and supply for different currencies
Relative price differences and ppp
Delay collection of foreign currency receivables if currency is exception to appreciate

30. What are some strategies for managing forex risk?
Exchange rate policies
u.s. dollar
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

31. What are the purposes of fiscal policies?
Collecting & spending of money by the government
u.s. dollar
1. distribute productive assets 2. ensure assets are not concentrated in countries
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

32. What is the second issue with EFSF?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
London - New York - Tokyo - and Singapore
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

33. What is the purpose of not concentrating assets in countries?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Inflation - interest rate - and market psychology
Establish central control and attempts to forecast future exchange rates
Increase currency values and protect against increases in foreign prices of goods and services

34. What is the third role of the U.S. dollar outside the U.S.?
up to date
domino effect
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
Reserve currency

35. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar
Control the amount of money in circulation - enforced by government policies - focus on growth rate

36. What is the characteristic of translation expose?
Borrowing of funds in foreign currency
Measurement of past events
True
Issue mo good loans so that profits from new business can eat away the losses form the bad

37. When do countries use the foreign exchange market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Transaction - translation and economic exposure

38. What is hedging?

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39. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

40. What are the two ways to reduce economic exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
1. distribute productive assets 2. ensure assets are not concentrated in countries
Monetary and fiscal policies
Lending of funds in foreign currencies

41. What are the three ways of insuring against a Forex risk?
24/7
Spot rates - forward rates - and swaps
Intervention currency (peg country currency)
agreed upon austerity

42. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Lead and lag strategies
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments

43. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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

44. What are the types of Exchange Rate Fluctuations?
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
Monetary and fiscal policies
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

45. What is the real exchange rate?
Banks stability was measure at a 5% capital adequacy ratio
London - New York - Tokyo - and Singapore
Goods and services of one country can be exchanged for the goods and services of another country
Inflation - interest rate - and market psychology

46. What is the first roels of the U.S. dollar outside the U.S.?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Vehicle currency(transaction between 2 less commonly used currencies)
1. distribute productive assets 2. ensure assets are not concentrated in countries
A common reference

47. What is externally convertible currency
A common reference
Obligations for the purchase or sale of goods and services at previously agreed prices
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Transaction - translation and economic exposure

48. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Banks stability was measure at a 5% capital adequacy ratio
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

49. 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.
Impact of currency exchange rate changes on reported financial statements
Transaction - translation and economic exposure

50. What are two methods of reducing translation and transaction exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Productivity and balance payments
Lead and lag strategies
Increase their exposure to banking -'s banking center