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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. What is the second characteristic of transaction exposure?
Reserve currency
Exchange rate policies
Obligations for the purchase or sale of goods and services at previously agreed prices
up to date

2. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
24/7
True
Paying foreign currency payable before dues as a result expected currency appreciation

3. What is non convertible currency?
An attempt to collect currency receivables early as result of expected depreciation
Lead and lag strategies
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

4. What are the types of Exchange Rate Fluctuations?
Firms future international earning power
1. distribute productive assets 2. ensure assets are not concentrated in countries
Monetary and fiscal policies
Forward exchange or spot exchange

5. How can transaction exposure be described?
Investor psychology
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply
The income form individual transacations

6. What is the real exchange rate?
A common reference
1. distribute productive assets 2. ensure assets are not concentrated in countries
Goods and services of one country can be exchanged for the goods and services of another country
Establish central control and attempts to forecast future exchange rates

7. The euro faces risks fo recapitalization?
Lending of funds in foreign currencies
Affected by fluctuation in foreign exchange values
Banks stability was measure at a 5% capital adequacy ratio
Delay collection of foreign currency receivables if currency is exception to appreciate

8. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
True
Reserve currency

9. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Interest rates and money supply
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency

10. Bailout Fund of EFSF - What is this shiz nitz?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Impact of currency exchange rate changes on reported financial statements
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

11. What is the third thing that determines the forex rates?
Inflation - interest rate - and market psychology
Productivity and balance payments
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Exchange rate policies

12. What is the third role 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
Reserve currency
Spot rates and forward rates
Impact of currency exchange rate changes on reported financial statements

13. What is the second characteristic of lag strategy?
Currency of one country can be exchanged for the currency of another country
Obligations for the purchase or sale of goods and services at previously agreed prices
Monetary and fiscal policies
Delay payables if currency is expected to depreciate

14. When do countries use foreign exchange market?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Investor psychology
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

15. What are two methods of reducing translation and transaction exposure?
Intervention currency (peg country currency)
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
Lead and lag strategies

16. 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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad

17. What is a currency swamp?
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
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

18. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Measurement of past events
Affected by fluctuation in foreign exchange values
Issue mo good loans so that profits from new business can eat away the losses form the bad

19. Burger economics!!! Why do we use it?
State driven recapitalization are now needed
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
up to date
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

20. What are three factors that impact a country's future exchange rate movements?
Spot rates and forward rates
Inflation - interest rate - and market psychology
Exchange rate policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate

21. What is the bandwagon effect when looking at form investor psychology ?
Exchange rate policies
Group of investors movement in the same direction and same time or government intervention
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
It helps them understand the influence of exchange rates on profitability of trade investment deals

22. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Delay payables if currency is expected to depreciate
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

23. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Forward exchange or spot exchange
1. distribute productive assets 2. ensure assets are not concentrated in countries
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

24. What is the fifth thing that determines the forex rates?
State driven recapitalization are now needed
Collecting & spending of money by the government
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Investor psychology

25. What is free convertible currency?
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
Monetary and fiscal policies
Relative price differences and ppp
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

26. What is the fourth characteristic of transaction exposure?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Transaction - translation and economic exposure
Lending of funds in foreign currencies
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

27. How do you insure or hedge against a Forex risk?
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates and forward rates
Forward exchange or spot exchange
Interest rates and money supply

28. What is the fourth thing that determines the forex rates?
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
Exchange rate policies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

29. What are some strategies for managing forex risk?
Vehicle currency(transaction between 2 less commonly used currencies)
It helps them understand the influence of exchange rates on profitability of trade investment deals
Borrowing of funds in foreign currency
Establish central control and attempts to forecast future exchange rates

30. What are the characteristics of economic exposure?
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
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
Spot rates - forward rates - and swaps

31. No single theory can explain explain the causes the value of currencies to change. True or False?
Reserve currency
True
Forward exchange or spot exchange
Interest rates and money supply

32. What is the first roels of the U.S. dollar outside the U.S.?
Firms future international earning power
A common reference
1. distribute productive assets 2. ensure assets are not concentrated in countries
Reserve currency

33. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Goods and services of one country can be exchanged for the goods and services of another country
Monetary and fiscal policies
Inflation - interest rate - and market psychology

34. What is the first issue with EFSF?
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
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
Vehicle currency(transaction between 2 less commonly used currencies)
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

35. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Spot rates - forward rates - and swaps
Goods and services of one country can be exchanged for the goods and services of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages

36. What are some factors that influence exchange rates?
Vehicle currency(transaction between 2 less commonly used currencies)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

37. What holds true to Purchase Power Parity Theory?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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
Establish central control and attempts to forecast future exchange rates
Goods and services of one country can be exchanged for the goods and services of another country

38. What are the purposes of fiscal policies?
Collecting & spending of money by the government
London - New York - Tokyo - and Singapore
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

39. What is the characteristic of translation expose?
Measurement of past events
u.s. dollar
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
State driven recapitalization are now needed

40. What are the three different types of foreign exchange rate risks?
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. distribute productive assets 2. ensure assets are not concentrated in countries
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Transaction - translation and economic exposure

41. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Intervention currency (peg country currency)
Vehicle currency(transaction between 2 less commonly used currencies)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

42. Most Transaction inovolve...
1. distribute productive assets 2. ensure assets are not concentrated in countries
Productivity and balance payments
u.s. dollar
Increase currency values and protect against increases in foreign prices of goods and services

43. 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
Exchange rates are determined by the demand and supply for different currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Impact of currency exchange rate changes on reported financial statements

44. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
agreed upon austerity
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

45. When do countries use the foreign exchange market?
u.s. dollar
State driven recapitalization are now needed
Inflation - interest rate - and market psychology
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

46. What is economic exposure?
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
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
Firms future international earning power

47. What are other strategies for managing forex risk?
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Firms future international earning power
Issue mo good loans so that profits from new business can eat away the losses form the bad

48. What are the two ways to quote currency?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates and forward rates

49. What is hedging?

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50. What are the important trading centers?
Delay payables if currency is expected to depreciate
Increase currency values and protect against increases in foreign prices of goods and services
Collecting & spending of money by the government
London - New York - Tokyo - and Singapore