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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 are the important trading centers?
Increase currency values and protect against increases in foreign prices of goods and services
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
Group of investors movement in the same direction and same time or government intervention
London - New York - Tokyo - and Singapore

2. What is externally convertible currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
domino effect
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

3. What is the fourth characteristic of transaction exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
u.s. dollar
Lending of funds in foreign currencies

4. What is hedging?

5. Most Transaction inovolve...
u.s. dollar
True
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Increase currency values and protect against increases in foreign prices of goods and services

6. What is free convertible currency?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
State driven recapitalization are now needed
Goods and services of one country can be exchanged for the goods and services of another country

7. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
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
Relative price differences and ppp

8. What is capital fight when looking at it form investor psychology?
Measurement of past events
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Inflation - interest rate - and market psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency

9. What are two methods of reducing translation and transaction exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lead and lag strategies
24/7

10. What are the three different types of foreign exchange rate risks?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Transaction - translation and economic exposure
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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

11. How do you establish central control?
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Vehicle currency(transaction between 2 less commonly used currencies)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

12. What are the purposes of fiscal policies?
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
Collecting & spending of money by the government
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
True

13. What holds true to Purchase Power Parity Theory?
Lending of funds in foreign currencies
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
Relative price differences and ppp
u.s. dollar

14. What is the purpose of not concentrating assets in countries?
Investor psychology
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
Increase currency values and protect against increases in foreign prices of goods and services
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

15. How and What is the purpose of distributing assets?
An attempt to collect currency receivables early as result of expected depreciation
Firms future international earning power
Goods and services of one country can be exchanged for the goods and services of another country
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

16. How can transaction exposure be described?
The income form individual transacations
Increase their exposure to banking -'s banking center
Interest rates and money supply
A common reference

17. What is the first characteristic of lead strategy?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Group of investors movement in the same direction and same time or government intervention
Large number of individuals and cos exchange of domestic currencies for a foreign currency
An attempt to collect currency receivables early as result of expected depreciation

18. What are some characteristics of swaps?
Vehicle currency(transaction between 2 less commonly used currencies)
Reserve 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
True

19. What is a currency swamp?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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

20. What are the first two things that determine Forex rates?
Vehicle currency(transaction between 2 less commonly used currencies)
Relative price differences and ppp
Productivity and balance payments
Investor psychology

21. What are the two ways to reduce 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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Vehicle currency(transaction between 2 less commonly used currencies)
Inflation - interest rate - and market psychology

22. What is the first issue with EFSF?
Relative price differences and ppp
Monetary and fiscal policies
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
The income form individual transacations

23. What is the second thing that determines the Forex rates?
A common reference
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

24. What are the two ways to quote currency?
Lead and lag strategies
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates and forward rates
Reserve currency

25. What is arbitrage?
Lead and lag strategies
Paying foreign currency payable before dues as a result expected currency appreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no 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

26. What is the second role of the U.S. dollar outside the U.S. ?
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
Currency of one country can be exchanged for the currency of another country
Intervention currency (peg country currency)

27. What is the third role of the U.S. dollar outside the U.S.?
Delay collection of foreign currency receivables if currency is exception to appreciate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay payables if currency is expected to depreciate
Reserve currency

28. Bailout Fund of EFSF - What is this shiz nitz?
Collecting & spending of money by the government
State driven recapitalization are now needed
London - New York - Tokyo - and Singapore
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

29. What is the nature of the forex market?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar
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
domino effect

30. What is a forward rate?
Transaction - translation and economic exposure
True
It helps them understand the influence of exchange rates on profitability of trade investment deals
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

31. What is the characteristic of translation expose?
Measurement of past events
Control the amount of money in circulation - enforced by government policies - focus on growth rate
State driven recapitalization are now needed
Vehicle currency(transaction between 2 less commonly used currencies)

32. What is the fourth thing that determines the forex rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
State driven recapitalization are now needed
Exchange rate policies
Delay collection of foreign currency receivables if currency is exception to appreciate

33. What causes big mac prices to vary?
Delay collection of foreign currency receivables if currency is exception to appreciate
Borrowing of funds in foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rates are determined by the demand and supply for different currencies

34. What are the characteristics of economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
agreed upon austerity
Intervention currency (peg country currency)

35. 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
Spot rates and forward rates
Increase currency values and protect against increases in foreign prices of goods and services

36. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Productivity and balance payments
Impact of currency exchange rate changes on reported financial statements
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

37. 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
Transaction - translation and economic exposure
Currency of one country can be exchanged for the currency of another country
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

38. According to economic theories of exchage rate determination?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rates are determined by the demand and supply for different currencies
True
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

39. How can translation exposure be described?
Intervention currency (peg country currency)
Impact of currency exchange rate changes on reported financial statements
up to date
It helps them understand the influence of exchange rates on profitability of trade investment deals

40. Greece has not defaulted because it has not been able to fully implement its...
Lending of funds in foreign currencies
agreed upon austerity
A common reference
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

41. 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
Goods and services of one country can be exchanged for the goods and services of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

42. No single theory can explain explain the causes the value of currencies to change. True or False?
Vehicle currency(transaction between 2 less commonly used currencies)
Relative price differences and ppp
True
Impact of currency exchange rate changes on reported financial statements

43. When do countries use foreign exchange market?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Intervention currency (peg country currency)
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

44. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
London - New York - Tokyo - and Singapore
State driven recapitalization are now needed
True

45. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Group of investors movement in the same direction and same time or government intervention
Delay collection of foreign currency receivables if currency is exception to appreciate
Collecting & spending of money by the government

46. When do countries use the foreign exchange market?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Goods and services of one country can be exchanged for the goods and services of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

47. Burger economics!!! Why do we use it?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Exchange rate policies
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

48. The euro faces risks fo recapitalization?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Establish central control and attempts to forecast future exchange rates
Banks stability was measure at a 5% capital adequacy ratio
Transaction - translation and economic exposure

49. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Exchange rates are determined by the demand and supply for different currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Spot rates - forward rates - and swaps

50. What is the fifth thing that determines the forex rates?
Exchange rates are determined by the demand and supply for different currencies
Borrowing of funds in foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Investor psychology