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Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
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. What is the purpose of not concentrating assets in countries?
Delay payables if currency is expected to depreciate
Currency of one country can be exchanged for the currency of another country
Paying foreign currency payable before dues as a result expected currency appreciation
Increase currency values and protect against increases in foreign prices of goods and services

2. What is capital fight when looking at it form investor psychology?
Relative price differences and ppp
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
A common reference
Large number of individuals and cos exchange of domestic currencies for a foreign currency

3. What do monetary policies do?
True
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

4. What is the nature of the forex market?
It helps them understand the influence of exchange rates on profitability of trade investment deals
State driven recapitalization are now needed
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
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

5. Burger economics!!! Why do we use it?
24/7
Currency of one country can be exchanged for the currency of another country
Monetary and fiscal policies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

6. What are the first two things that determine Forex rates?
Relative price differences and ppp
Measurement of past events
Transportation costs - trade barriers - and not trade inputs such as rents or wages
A common reference

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

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8. It is important to stay __________ with your current events
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
up to date
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
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

9. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
London - New York - Tokyo - and Singapore
Impact of currency exchange rate changes on reported financial statements
True

10. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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 their exposure to banking -'s banking center

11. What is the third role of the U.S. dollar outside the U.S.?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Firms future international earning power
Reserve currency
Interest rates and money supply

12. Most Transaction inovolve...
u.s. dollar
True
Spot rates and forward rates
Affected by fluctuation in foreign exchange values

13. What are the three different types of foreign exchange rate risks?
Establish central control and attempts to forecast future exchange rates
Transaction - translation and economic exposure
Currency of one country can be exchanged for the currency of another country
Reserve currency

14. What is the second characteristic of lag strategy?
Spot rates and forward rates
Delay payables if currency is expected to depreciate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
1. distribute productive assets 2. ensure assets are not concentrated in countries

15. What is economic exposure?
Firms future international earning power
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
24/7
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

16. What are the two ways to reduce economic exposure?
Interest rates and money supply
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Spot rates - forward rates - and swaps
1. distribute productive assets 2. ensure assets are not concentrated in countries

17. What is a forward rate?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

18. What is the bandwagon effect when looking at form investor psychology ?
Investor psychology
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
Impact of currency exchange rate changes on reported financial statements

19. What are the three ways of insuring against a Forex risk?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Spot rates - forward rates - and swaps

20. What are some characteristics of 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
Investor psychology
Increase currency values and protect against increases in foreign prices of goods and services
Delay payables if currency is expected to depreciate

21. How do you insure or hedge against a Forex risk?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
True
Interest rates and money supply
Forward exchange or spot exchange

22. What is the first characteristic of lead strategy?
24/7
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
An attempt to collect currency receivables early as result of expected depreciation
Establish central control and attempts to forecast future exchange rates

23. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Delay payables if currency is expected to depreciate
Productivity and balance payments
Reserve currency

24. What are two methods of reducing translation and transaction exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Collecting & spending of money by the government
Lead and lag strategies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

25. What is the third characteristic of transaction exposure?
Affected by fluctuation in foreign exchange values
Borrowing of funds in foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

26. How and What is the purpose of distributing assets?
Obligations for the purchase or sale of goods and services at previously agreed prices
State driven recapitalization are now needed
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Interest rates and money supply

27. What is the second characteristic of transaction exposure?
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
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
True

28. How do you establish central control?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

29. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
A common reference
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad

30. What are the characteristics of economic exposure?
London - New York - Tokyo - and Singapore
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

31. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Inflation - interest rate - and market psychology
Lead and lag strategies
London - New York - Tokyo - and Singapore

32. What is arbitrage?
Affected by fluctuation in foreign exchange values
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)
u.s. dollar

33. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
State driven recapitalization are now needed

34. What is hedging?

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35. What are the purposes of fiscal policies?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates and forward rates
Lending of funds in foreign currencies
Collecting & spending of money by the government

36. What is the fifth thing that determines the forex rates?
Lead and lag strategies
Investor psychology
Spot rates and forward rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

37. What is the fourth characteristic of transaction exposure?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Lending of funds in foreign currencies
Reserve currency
Obligations for the purchase or sale of goods and services at previously agreed prices

38. What is the first roels of the U.S. dollar outside the U.S.?
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
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.
Issue mo good loans so that profits from new business can eat away the losses form the bad

39. What is the characteristic of translation expose?
Measurement of past events
Relative price differences and ppp
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
u.s. dollar

40. What is the second characteristic of lead strategy?
A common reference
Paying foreign currency payable before dues as a result expected currency appreciation
Intervention currency (peg country currency)
Delay payables if currency is expected to depreciate

41. What are the important trading centers?
London - New York - Tokyo - and Singapore
Vehicle currency(transaction between 2 less commonly used currencies)
Increase their exposure to banking -'s banking center
Exchange rates are determined by the demand and supply for different currencies

42. No single theory can explain explain the causes the value of currencies to change. True or False?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Issue mo good loans so that profits from new business can eat away the losses form the bad
Transportation costs - trade barriers - and not trade inputs such as rents or wages
True

43. What is non convertible currency?
domino effect
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign 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 is a currency swamp?
True
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Increase currency values and protect against increases in foreign prices of goods and services
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

45. What is the first characteristic of lag strategy?
Collecting & spending of money by the government
Affected by fluctuation in foreign exchange values
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate

46. What is externally convertible currency
Currency of one country can be exchanged for the currency of another country
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Affected by fluctuation in foreign exchange values
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

47. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
1. distribute productive assets 2. ensure assets are not concentrated in countries
24/7
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

48. What is a spot rate?
Monetary and fiscal policies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
An attempt to collect currency receivables early as result of expected depreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

49. When do countries use foreign exchange market?
Impact of currency exchange rate changes on reported financial statements
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
agreed upon austerity
Inflation - interest rate - and market psychology

50. What is the fourth thing that determines the forex rates?
State driven recapitalization are now needed
Exchange rate policies
It helps them understand the influence of exchange rates on profitability of trade investment deals
True