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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. What is the second characteristic of lead strategy?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Collecting & spending of money by the government

2. What is a forward rate?
Interest rates and money supply
Lead and lag strategies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

3. What is the third thing that determines the forex rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
True
Productivity and balance payments
Monetary and fiscal policies

4. What are two methods of reducing translation and transaction exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Increase currency values and protect against increases in foreign prices of goods and services
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
Lead and lag strategies

5. What is the third characteristic of transaction exposure?
Forward exchange or spot exchange
Borrowing of funds in foreign currency
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

6. What are the purposes of fiscal policies?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Paying foreign currency payable before dues as a result expected currency appreciation
Collecting & spending of money by the government

7. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Exchange rate policies
State driven recapitalization are now needed

8. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Lead and lag strategies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rates are determined by the demand and supply for different currencies

9. It is important to stay __________ with your current events
up to date
Collecting & spending of money by the government
Spot rates and forward rates
Intervention currency (peg country currency)

10. 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
True
up to date
Borrowing of funds in foreign currency

11. What are the first two things that determine Forex rates?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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
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
Relative price differences and ppp

12. What is the second characteristic of lag strategy?
A common reference
Delay payables if currency is expected to depreciate
Establish central control and attempts to forecast future exchange rates
Vehicle currency(transaction between 2 less commonly used currencies)

13. What is the first characteristic of lead strategy?
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
Delay payables if currency is expected to depreciate
Paying foreign currency payable before dues as a result expected currency appreciation

14. What is a currency swamp?
Exchange rates are determined by the demand and supply for different currencies
True
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Transportation costs - trade barriers - and not trade inputs such as rents or wages

15. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Lead and lag strategies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Issue mo good loans so that profits from new business can eat away the losses form the bad

16. What are the two ways to quote currency?
Lending of funds in foreign currencies
True
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

17. What do monetary policies do?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Investor psychology
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

18. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
u.s. dollar
Intervention currency (peg country currency)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

19. 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
Banks stability was measure at a 5% capital adequacy ratio
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

20. Bailout Fund of EFSF - What is this shiz nitz?
Increase their exposure to banking -'s banking center
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Interest rates and money supply
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

21. What implications does understanding foreign exchange rates have on managers?
A common reference
Exchange rates are determined by the demand and supply for different currencies
Lead and lag strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals

22. What is the fifth thing that determines the forex rates?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Investor psychology

23. What is arbitrage?
Collecting & spending of money by the government
Forward exchange or spot exchange
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

24. How do you insure or hedge against a Forex risk?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Forward exchange or spot exchange
Borrowing of funds in foreign currency
24/7

25. How can translation exposure be described?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
u.s. dollar
Impact of currency exchange rate changes on reported financial statements
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

26. According to economic theories of exchage rate determination?
Monetary and fiscal policies
Exchange rates are determined by the demand and supply for different currencies
A common reference
It helps them understand the influence of exchange rates on profitability of trade investment deals

27. What is free convertible currency?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Delay collection of foreign currency receivables if currency is exception to appreciate
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Banks stability was measure at a 5% capital adequacy ratio

28. What is the nominal exchange rate?
Obligations for the purchase or sale of goods and services at previously agreed prices
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
domino effect

29. What is hedging?

30. What is the first characteristic of lag strategy?
Firms future international earning power
Delay collection of foreign currency receivables if currency is exception to appreciate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Goods and services of one country can be exchanged for the goods and services of another country

31. What are the important trading centers?
London - New York - Tokyo - and Singapore
Measurement of past events
Interest rates and money supply
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

32. Most Transaction inovolve...
u.s. dollar
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Monetary and fiscal policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

33. What is the law of one price?
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)
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
Relative price differences and ppp

34. What is the second thing that determines the Forex rates?
Relative price differences and ppp
Currency of one country can be exchanged for the currency of another country
Interest rates and money supply
Goods and services of one country can be exchanged for the goods and services of another country

35. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
Delay payables if currency is expected to depreciate

36. What is the first characteristic of transaction exposure ?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Affected by fluctuation in foreign exchange values
Exchange rate policies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

37. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
State driven recapitalization are now needed
Productivity and balance payments
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

38. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Relative price differences and ppp
Exchange rate policies
Impact of currency exchange rate changes on reported financial statements

39. What is the second role of the U.S. dollar outside the U.S. ?
Spot rates and forward rates
up to date
Intervention currency (peg country currency)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

40. What is the purpose of not concentrating assets in countries?
Relative price differences and ppp
London - New York - Tokyo - and Singapore
domino effect
Increase currency values and protect against increases in foreign prices of goods and services

41. What holds true to Purchase Power Parity Theory?
Monetary and fiscal policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

42. What is capital fight when looking at it form investor psychology?
Establish central control and attempts to forecast future exchange rates
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Collecting & spending of money by the government

43. What is the bandwagon effect when looking at form investor psychology ?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
Group of investors movement in the same direction and same time or government intervention
An attempt to collect currency receivables early as result of expected depreciation

44. What are the characteristics of economic exposure?
24/7
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. protect resources efficiently 2. ensure correct mix of tactics and strategies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

45. What is the fourth thing that determines the forex rates?
Lead and lag strategies
Exchange rate policies
Goods and services of one country can be exchanged for the goods and services of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

46. What causes big mac prices to vary?
State driven recapitalization are now needed
Affected by fluctuation in foreign exchange values
Monetary and fiscal policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages

47. What is the fourth characteristic of transaction exposure?
Inflation - interest rate - and market psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Lending of funds in foreign currencies
Obligations for the purchase or sale of goods and services at previously agreed prices

48. What are the two ways to reduce economic exposure?
domino effect
Productivity and balance payments
1. distribute productive assets 2. ensure assets are not concentrated in countries
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

49. When do countries use foreign exchange market?
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
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

50. What is the first roels of the U.S. dollar outside the U.S.?
Exchange rate policies
Vehicle currency(transaction between 2 less commonly used currencies)
Issue mo good loans so that profits from new business can eat away the losses form the bad
A common reference