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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.
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. How can translation exposure be described?
State driven recapitalization are now needed
Issue mo good loans so that profits from new business can eat away the losses form the bad
Impact of currency exchange rate changes on reported financial statements
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

2. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Monetary and fiscal policies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
State driven recapitalization are now needed
Relative price differences and ppp

3. What are some strategies for managing forex risk?
Paying foreign currency payable before dues as a result expected currency appreciation
Reserve currency
Intervention currency (peg country currency)
Establish central control and attempts to forecast future exchange rates

4. What are the types of Exchange Rate Fluctuations?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
24/7
Monetary and fiscal policies
London - New York - Tokyo - and Singapore

5. What is the fourth thing that determines the forex rates?
Increase their exposure to banking -'s banking center
Exchange rate policies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

6. It is important to stay __________ with your current events
up to date
Borrowing of funds in foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

7. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Productivity and balance payments
24/7
Monetary and fiscal policies

8. What is the real exchange rate?
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
Goods and services of one country can be exchanged for the goods and services of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad

9. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Investor psychology
A common reference
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

10. What is the second issue with EFSF?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Measurement of past events

11. 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.
London - New York - Tokyo - and Singapore
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

12. How do you establish central control?
Interest rates and money supply
Transaction - translation and economic exposure
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Group of investors movement in the same direction and same time or government intervention

13. What is the third thing that determines the forex rates?
Productivity and balance payments
Measurement of past events
Reserve 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

14. What do monetary policies do?
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
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

15. What are three factors that impact a country's future exchange rate movements?
Paying foreign currency payable before dues as a result expected currency appreciation
It helps them understand the influence of exchange rates on profitability of trade investment deals
Inflation - interest rate - and market psychology
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

16. What implications does understanding foreign exchange rates have on managers?
Impact of currency exchange rate changes on reported financial statements
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
Increase their exposure to banking -'s banking center

17. What is the first characteristic of lead strategy?
Currency of one country can be exchanged for the currency of another country
An attempt to collect currency receivables early as result of expected depreciation
Reserve currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

18. What is the second characteristic of lag strategy?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay collection of foreign currency receivables if currency is exception to appreciate
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Delay payables if currency is expected to depreciate

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

20. Bailout Fund of EFSF - What is this shiz nitz?
Increase their exposure to banking -'s banking center
1. distribute productive assets 2. ensure assets are not concentrated in countries
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
London - New York - Tokyo - and Singapore

21. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
24/7
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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. How do you insure or hedge against a Forex risk?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
Affected by fluctuation in foreign exchange values
Forward exchange or spot exchange

23. How can transaction exposure be described?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
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
The income form individual transacations

24. The euro faces risks fo recapitalization?
Spot rates - forward rates - and swaps
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Measurement of past events
Banks stability was measure at a 5% capital adequacy ratio

25. What are the two ways to quote currency?
Group of investors movement in the same direction and same time or government intervention
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates and forward rates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

26. What is the first issue with EFSF?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Currency of one country can be exchanged for the currency of another country
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages

27. What are the three different types of foreign exchange rate risks?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Transaction - translation and economic exposure

28. What is the law of one price?
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
A common reference
Spot rates and forward rates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

29. Most Transaction inovolve...
Lending of funds in foreign currencies
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
u.s. dollar
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

30. What is externally convertible currency
Paying foreign currency payable before dues as a result expected currency appreciation
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
Monetary and fiscal policies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

31. What is hedging?

32. When do countries use foreign exchange market?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Inflation - interest rate - and market psychology
up to date
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

33. What is the second characteristic of transaction exposure?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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
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

34. Greece has not defaulted because it has not been able to fully implement its...
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Impact of currency exchange rate changes on reported financial statements
agreed upon austerity
Inflation - interest rate - and market psychology

35. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Currency of one country can be exchanged for the currency of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

36. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Interest rates and money supply

37. What are the three ways of insuring against a Forex risk?
Goods and services of one country can be exchanged for the goods and services of another country
Lead and lag strategies
Spot rates - forward rates - and swaps
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

38. Marekts are open...
It helps them understand the influence of exchange rates on profitability of trade investment deals
24/7
Exchange rate policies
Banks stability was measure at a 5% capital adequacy ratio

39. What is the first characteristic of transaction exposure ?
State driven recapitalization are now needed
Affected by fluctuation in foreign exchange values
Delay collection of foreign currency receivables if currency is exception to appreciate
Exchange rate policies

40. What is the nature of the forex market?
Investor psychology
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
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates and forward rates

41. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Intervention currency (peg country currency)
Monetary and fiscal policies
Collecting & spending of money by the government

42. What are the important trading centers?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
London - New York - Tokyo - and Singapore
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

43. What is capital fight when looking at it form investor psychology?
Lead and lag strategies
A common reference
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

44. What holds true to Purchase Power Parity Theory?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Paying foreign currency payable before dues as a result expected currency appreciation
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

45. What is the first roels of the U.S. dollar outside the U.S.?
Currency of one country can be exchanged for the currency of another country
A common reference
An attempt to collect currency receivables early as result of expected depreciation
Transportation costs - trade barriers - and not trade inputs such as rents or wages

46. What is the fourth characteristic of transaction exposure?
Inflation - interest rate - and market psychology
Forward exchange or spot exchange
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lending of funds in foreign currencies

47. What is economic exposure?
Increase their exposure to banking -'s banking center
Firms future international earning power
Banks stability was measure at a 5% capital adequacy ratio
24/7

48. How and What is the purpose of distributing assets?
Collecting & spending of money by the government
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Relative price differences and ppp

49. What are other strategies for managing forex risk?
State driven recapitalization are now needed
Lending of funds in foreign currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Vehicle currency(transaction between 2 less commonly used currencies)

50. What are the characteristics of economic exposure?
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
up to date
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs