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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. According to economic theories of exchage rate determination?
Spot rates - forward rates - and 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
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
Exchange rates are determined by the demand and supply for different currencies

2. Bailout Fund of EFSF - What is this shiz nitz?
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
Banks stability was measure at a 5% capital adequacy ratio
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

3. What is the second thing that determines the Forex rates?
Increase their exposure to banking -'s banking center
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply
It helps them understand the influence of exchange rates on profitability of trade investment deals

4. What is non convertible 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
Paying foreign currency payable before dues as a result expected currency appreciation
Monetary and fiscal policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

5. 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.
1. distribute productive assets 2. ensure assets are not concentrated in countries
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country

6. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Monetary and fiscal policies
Exchange rates are determined by the demand and supply for different currencies
domino effect

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

8. What are the three ways of insuring against a Forex risk?
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
Spot rates - forward rates - and swaps
up to date

9. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
up to date
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The income form individual transacations

10. 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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Exchange rate policies

11. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
London - New York - Tokyo - and Singapore
Goods and services of one country can be exchanged for the goods and services of another country
An attempt to collect currency receivables early as result of expected depreciation

12. How can translation exposure be described?
Borrowing of funds in foreign currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Impact of currency exchange rate changes on reported financial statements

13. What is the purpose of not concentrating assets in countries?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
A common reference
Increase currency values and protect against increases in foreign prices of goods and services
Large number of individuals and cos exchange of domestic currencies for a foreign currency

14. No single theory can explain explain the causes the value of currencies to change. True or False?
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
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages

15. What is the second characteristic of lag strategy?
Lead and lag strategies
Delay payables if currency is expected to depreciate
u.s. dollar
1. distribute productive assets 2. ensure assets are not concentrated in countries

16. What are the important trading centers?
London - New York - Tokyo - and Singapore
Spot rates - forward rates - and swaps
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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

17. 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
Currency of one country can be exchanged for the currency of another country
Firms future international earning power
Affected by fluctuation in foreign exchange values

18. What are the purposes of fiscal policies?
Increase currency values and protect against increases in foreign prices of goods and services
domino effect
Collecting & spending of money by the government
Productivity and balance payments

19. What are the three different types of foreign exchange rate risks?
Vehicle currency(transaction between 2 less commonly used currencies)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency

20. Burger economics!!! Why do we use it?
Intervention currency (peg country currency)
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

21. How do you insure or hedge against a Forex risk?
Establish central control and attempts to forecast future exchange rates
Forward exchange or spot exchange
Issue mo good loans so that profits from new business can eat away the losses form the bad
Borrowing of funds in foreign currency

22. How and What is the purpose of distributing assets?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
London - New York - Tokyo - and Singapore
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

23. What is capital fight when looking at it form investor psychology?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Delay payables if currency is expected to depreciate
Delay collection of foreign currency receivables if currency is exception to appreciate
Large number of individuals and cos exchange of domestic currencies for a foreign currency

24. What are the first two things that determine Forex rates?
Group of investors movement in the same direction and same time or government intervention
Transaction - translation and economic exposure
Relative price differences and ppp
Borrowing of funds in foreign currency

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

26. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
True
State driven recapitalization are now needed
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Delay collection of foreign currency receivables if currency is exception to appreciate

27. What are the two ways to quote currency?
Delay payables if currency is expected to depreciate
Issue mo good loans so that profits from new business can eat away the losses form the bad
Borrowing of funds in foreign currency
Spot rates and forward rates

28. What is the third role of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
Currency of one country can be exchanged for the currency of another country
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Reserve currency

29. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Delay collection of foreign currency receivables if currency is exception to appreciate
Banks stability was measure at a 5% capital adequacy ratio
Spot rates and forward rates

30. What are the two ways to reduce economic exposure?
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
Firms future international earning power
A common reference

31. What is the fourth characteristic of transaction exposure?
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
Lending of funds in foreign currencies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

32. What is the fourth thing that determines the forex rates?
Exchange rate policies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Obligations for the purchase or sale of goods and services at previously agreed prices
Paying foreign currency payable before dues as a result expected currency appreciation

33. 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
domino effect

34. What is the law of one price?
Vehicle currency(transaction between 2 less commonly used currencies)
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
Establish central control and attempts to forecast future exchange rates
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

35. What is the first roels of the U.S. dollar outside the U.S.?
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference
Reserve currency
Currency of one country can be exchanged for the currency of another country

36. What holds true to Purchase Power Parity Theory?
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
Large number of individuals and cos exchange of domestic currencies for a foreign 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
Inflation - interest rate - and market psychology

37. What causes big mac prices to vary?
Lending of funds in foreign currencies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Control the amount of money in circulation - enforced by government policies - focus on growth rate

38. When do countries use foreign exchange market?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Borrowing of funds in foreign currency

39. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Investor psychology
True
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
Interest rates and money supply

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

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41. What is the first characteristic of lag strategy?
Measurement of past events
Delay collection of foreign currency receivables if currency is exception to appreciate
u.s. dollar
London - New York - Tokyo - and Singapore

42. What is the third characteristic of transaction exposure?
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Borrowing of funds in foreign currency

43. What is a forward rate?
Impact of currency exchange rate changes on reported financial statements
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps
Obligations for the purchase or sale of goods and services at previously agreed prices

44. What are other strategies for managing forex risk?
London - New York - Tokyo - and Singapore
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

45. What is hedging?

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46. What is the first characteristic of lead strategy?
Monetary and fiscal policies
domino effect
Transaction - translation and economic exposure
An attempt to collect currency receivables early as result of expected depreciation

47. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Productivity and balance payments
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Inflation - interest rate - and market psychology

48. What is economic exposure?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Firms future international earning power
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
State driven recapitalization are now needed

49. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Delay payables if currency is expected to depreciate

50. What is arbitrage?
Impact of currency exchange rate changes on reported financial statements
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Paying foreign currency payable before dues as a result expected currency appreciation