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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 holds true to Purchase Power Parity Theory?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
24/7
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

2. What is the third role of the U.S. dollar outside the U.S.?
London - New York - Tokyo - and Singapore
An attempt to collect currency receivables early as result of expected depreciation
Reserve currency
State driven recapitalization are now needed

3. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Delay payables if currency is expected to depreciate

4. When do countries use the foreign exchange market?
London - New York - Tokyo - and Singapore
Spot rates and forward rates
Intervention currency (peg country currency)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

5. What is the fourth characteristic of transaction exposure?
Goods and services of one country can be exchanged for the goods and services of another country
True
Productivity and balance payments
Lending of funds in foreign currencies

6. What is the second issue with EFSF?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

7. What is a forward rate?
Exchange rates are determined by the demand and supply for different currencies
Productivity and balance payments
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

8. What implications does understanding foreign exchange rates have on managers?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Relative price differences and ppp
Borrowing of funds in foreign currency

9. It is important to stay __________ with your current events
up to date
Relative price differences and ppp
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lead and lag strategies

10. What is the characteristic of translation expose?
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
Spot rates and forward rates
Measurement of past events
agreed upon austerity

11. What is the second thing that determines the Forex rates?
Firms future international earning power
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Interest rates and money supply
Increase their exposure to banking -'s banking center

12. 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Measurement of past events

13. What are the first two things that determine Forex rates?
Increase their exposure to banking -'s banking center
Relative price differences and ppp
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Borrowing of funds in foreign currency

14. What are the purposes of fiscal policies?
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Collecting & spending of money by the government
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

15. When do countries use foreign exchange market?
Forward exchange or spot exchange
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
Inflation - interest rate - and market psychology
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

16. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Delay collection of foreign currency receivables if currency is exception to appreciate
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

17. No single theory can explain explain the causes the value of currencies to change. True or False?
domino effect
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
True
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

18. What are other strategies for managing forex risk?
A common reference
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

19. What is the third thing that determines the forex rates?
Group of investors movement in the same direction and same time or government intervention
Exchange rate policies
Goods and services of one country can be exchanged for the goods and services of another country
Productivity and balance payments

20. Burger economics!!! Why do we use it?
u.s. dollar
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
Relative price differences and ppp

21. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp
Delay collection of foreign currency receivables if currency is exception to appreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

22. What is the second characteristic of lag strategy?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Group of investors movement in the same direction and same time or government intervention
Delay payables if currency is expected to depreciate
Goods and services of one country can be exchanged for the goods and services of another country

23. What is the fifth thing that determines the forex rates?
Delay payables if currency is expected to depreciate
Investor psychology
State driven recapitalization are now needed
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

24. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The income form individual transacations

25. How can translation exposure be described?
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
Impact of currency exchange rate changes on reported financial statements
Collecting & spending of money by the government
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

26. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Impact of currency exchange rate changes on reported financial statements
True
Firms future international earning power
Transaction - translation and economic exposure

27. Most Transaction inovolve...
u.s. dollar
True
Delay collection of foreign currency receivables if currency is exception to appreciate
An attempt to collect currency receivables early as result of expected depreciation

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

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29. What are the important trading centers?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
London - New York - Tokyo - and Singapore
Transaction - translation and economic exposure
Issue mo good loans so that profits from new business can eat away the losses form the bad

30. What are the two ways to quote currency?
Spot rates and forward rates
A common reference
Inflation - interest rate - and market psychology
Measurement of past events

31. What is capital fight when looking at it form investor psychology?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Banks stability was measure at a 5% capital adequacy ratio
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

32. 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
Measurement of past events
Group of investors movement in the same direction and same time or government intervention

33. How do you establish central control?
Vehicle currency(transaction between 2 less commonly used currencies)
A common reference
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

34. What are the two ways to reduce economic exposure?
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. distribute productive assets 2. ensure assets are not concentrated in countries
Productivity and balance payments

35. What is the nominal exchange rate?
Forward exchange or spot exchange
Exchange rates are determined by the demand and supply for different currencies
Currency of one country can be exchanged for the currency of another country
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

36. What causes big mac prices to vary?
True
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
State driven recapitalization are now needed
Transportation costs - trade barriers - and not trade inputs such as rents or wages

37. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Firms future international earning power
Reserve currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

38. What is the law of one price?
Firms future international earning power
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
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

39. What is hedging?

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40. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
u.s. dollar
Transaction - translation and economic exposure

41. What are some strategies for managing forex risk?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Establish central control and attempts to forecast future exchange rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Inflation - interest rate - and market psychology

42. What is non convertible currency?
24/7
Intervention currency (peg country 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;future delievery in 30/60/90/180 days

43. What are some factors that influence exchange rates?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Lead and lag strategies
True
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

44. What do monetary policies do?
Establish central control and attempts to forecast future exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
An attempt to collect currency receivables early as result of expected depreciation

45. What is the first characteristic of lead strategy?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
An attempt to collect currency receivables early as result of expected depreciation
Spot rates and forward rates

46. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
Collecting & spending of money by the government
Obligations for the purchase or sale of goods and services at previously agreed prices
Interest rates and money supply

47. Marekts are open...
Productivity and balance payments
24/7
Lead and lag strategies
Delay collection of foreign currency receivables if currency is exception to appreciate

48. What is the fourth thing that determines the forex rates?
Transaction - translation and economic exposure
Delay collection of foreign currency receivables if currency is exception to appreciate
Exchange rate policies
24/7

49. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Affected by fluctuation in foreign exchange values
Obligations for the purchase or sale of goods and services at previously agreed prices
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

50. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Exchange rate policies
Relative price differences and ppp