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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 hedging?

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2. What is the law of one price?
Forward exchange or spot exchange
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
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

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

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4. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

5. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
An attempt to collect currency receivables early as result of expected depreciation
State driven recapitalization are now needed
Measurement of past events
Increase their exposure to banking -'s banking center

6. Burger economics!!! Why do we use it?
Borrowing of funds in foreign currency
Reserve currency
Vehicle currency(transaction between 2 less commonly used currencies)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

7. What is a spot rate?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

8. What is the third role of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
Reserve currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

9. No single theory can explain explain the causes the value of currencies to change. True or False?
up to date
Inflation - interest rate - and market psychology
A common reference
True

10. Marekts are open...
agreed upon austerity
24/7
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

11. What is a forward rate?
Reserve currency
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

12. What causes big mac prices to vary?
Measurement of past events
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Group of investors movement in the same direction and same time or government intervention
Banks stability was measure at a 5% capital adequacy ratio

13. Bailout Fund of EFSF - What is this shiz nitz?
Borrowing of funds in foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates and forward rates

14. What is the characteristic of translation expose?
Measurement of past events
Transaction - translation and economic exposure
24/7
Increase currency values and protect against increases in foreign prices of goods and services

15. Defaulting on debt has a __________ that intertwines all countries in Europe.
u.s. dollar
domino effect
Spot rates - forward rates - and swaps
Productivity and balance payments

16. What is arbitrage?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Interest rates and money supply
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

17. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
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
u.s. dollar

18. What is free convertible currency?
An attempt to collect currency receivables early as result of expected depreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Currency of one country can be exchanged for the currency of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

19. What is economic exposure?
domino effect
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Firms future international earning power
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

20. 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
Increase their exposure to banking -'s banking center
Measurement of past events
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

21. How can transaction exposure be described?
The income form individual transacations
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp
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

22. What are three factors that impact a country's future exchange rate movements?
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
Firms future international earning power
Inflation - interest rate - and market psychology
Impact of currency exchange rate changes on reported financial statements

23. What is the first characteristic of transaction exposure ?
Investor psychology
Group of investors movement in the same direction and same time or government intervention
Relative price differences and ppp
Affected by fluctuation in foreign exchange values

24. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
Delay collection of foreign currency receivables if currency is exception to appreciate
Lending of funds in foreign 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

25. What is the second issue with EFSF?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Banks stability was measure at a 5% capital adequacy ratio

26. What is externally convertible currency
Forward exchange or spot exchange
up to date
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

27. What are the two ways to quote currency?
Spot rates - forward rates - and swaps
Banks stability was measure at a 5% capital adequacy ratio
Spot rates and forward rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

28. What is the second thing that determines the Forex rates?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Interest rates and money supply
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

29. What is the first roels of the U.S. dollar outside the U.S.?
Delay collection of foreign currency receivables if currency is exception to appreciate
An attempt to collect currency receivables early as result of expected depreciation
A common reference
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

30. What are the three different types of foreign exchange rate risks?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transaction - translation and economic exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
agreed upon austerity

31. What are the three ways of insuring against a Forex risk?
Reserve currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Spot rates - forward rates - and swaps
Transportation costs - trade barriers - and not trade inputs such as rents or wages

32. What is the fourth thing that determines the forex rates?
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
Exchange rate policies
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

33. What is the first characteristic of lead strategy?
Obligations for the purchase or sale of goods and services at previously agreed prices
An attempt to collect currency receivables early as result of expected depreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Measurement of past events

34. What is the real exchange rate?
Inflation - interest rate - and market psychology
Productivity and balance payments
Goods and services of one country can be exchanged for the goods and services of another country
Borrowing of funds in foreign currency

35. What is the nominal exchange rate?
State driven recapitalization are now needed
Currency of one country can be exchanged for the currency of another country
Monetary and fiscal policies
True

36. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Relative price differences and ppp
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
It helps them understand the influence of exchange rates on profitability of trade investment deals

37. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
agreed upon austerity
Transaction - translation and economic exposure
Spot rates and forward rates

38. It is important to stay __________ with your current events
Exchange rates are determined by the demand and supply for different currencies
up to date
Reserve currency
u.s. dollar

39. What are the first two things that determine Forex rates?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
It helps them understand the influence of exchange rates on profitability of trade investment deals
up to date
Relative price differences and ppp

40. What is the second characteristic of lead strategy?
Investor psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Paying foreign currency payable before dues as a result expected currency appreciation
London - New York - Tokyo - and Singapore

41. What is the third thing that determines the forex rates?
Productivity and balance payments
An attempt to collect currency receivables early as result of expected depreciation
Establish central control and attempts to forecast future exchange rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

42. What are some factors that influence exchange rates?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Establish central control and attempts to forecast future exchange rates

43. How can translation exposure be described?
Forward exchange or spot exchange
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Inflation - interest rate - and market psychology

44. How and What is the purpose of distributing assets?
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore
Spot rates - forward rates - and swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

45. What is a currency swamp?
London - New York - Tokyo - and Singapore
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
An attempt to collect currency receivables early as result of expected depreciation

46. What is the third characteristic of transaction exposure?
Borrowing of funds in 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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Vehicle currency(transaction between 2 less commonly used currencies)

47. 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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Productivity and balance payments
Spot rates - forward rates - and swaps

48. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Firms future international earning power
24/7

49. What is the purpose of not concentrating assets in countries?
domino effect
Lending of funds in foreign currencies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase currency values and protect against increases in foreign prices of goods and services

50. What are the important trading centers?
London - New York - Tokyo - and Singapore
Forward exchange or spot exchange
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Establish central control and attempts to forecast future exchange rates