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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 fourth thing that determines the forex rates?
agreed upon austerity
Spot rates and forward rates
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Exchange rate policies

2. 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
Spot rates and forward rates
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)

3. What implications does understanding foreign exchange rates have on managers?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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

4. Greece has not defaulted because it has not been able to fully implement its...
Currency of one country can be exchanged for the currency of another country
agreed upon austerity
up to date
A common reference

5. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
Banks stability was measure at a 5% capital adequacy ratio
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

6. What is capital fight when looking at it form investor psychology?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Monetary and fiscal policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

7. What is a spot rate?
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
agreed upon austerity
Exchange rate policies

8. Most Transaction inovolve...
u.s. dollar
London - New York - Tokyo - and Singapore
Currency of one country can be exchanged for the currency of another country
Borrowing of funds in foreign currency

9. How do you establish central control?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Measurement of past events
Large number of individuals and cos exchange of domestic currencies for a foreign currency

10. What holds true to Purchase Power Parity Theory?
Affected by fluctuation in foreign exchange values
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
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

11. What is the second issue with EFSF?
u.s. dollar
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
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

12. How and What is the purpose of distributing assets?
Reserve currency
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; delivery within two days (conversion on a particular day)
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

13. What is the fifth thing that determines the forex rates?
Investor psychology
up to date
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
agreed upon austerity

14. What is free convertible currency?
Establish central control and attempts to forecast future exchange rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Borrowing of funds in foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad

15. What are three factors that impact a country's future exchange rate movements?
True
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates - forward rates - and swaps
Inflation - interest rate - and market psychology

16. What is the fourth roles of the U.S. dollar outside the U.S.?
Spot rates - forward rates - and swaps
Paying foreign currency payable before dues as a result expected currency appreciation
Vehicle currency(transaction between 2 less commonly used currencies)
24/7

17. What is the first characteristic of lead strategy?
Intervention currency (peg country currency)
Measurement of past events
Issue mo good loans so that profits from new business can eat away the losses form the bad
An attempt to collect currency receivables early as result of expected depreciation

18. Bailout Fund of EFSF - What is this shiz nitz?
Increase currency values and protect against increases in foreign prices of goods and services
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Reserve currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

19. What is the second characteristic of lead strategy?
up to date
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
Paying foreign currency payable before dues as a result expected currency appreciation
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

20. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Establish central control and attempts to forecast future exchange rates
Group of investors movement in the same direction and same time or government intervention
State driven recapitalization are now needed

21. How can transaction exposure be described?
The income form individual transacations
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

22. What are some strategies for managing forex risk?
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. distribute productive assets 2. ensure assets are not concentrated in countries
Vehicle currency(transaction between 2 less commonly used currencies)
Establish central control and attempts to forecast future exchange rates

23. How can translation exposure be described?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Group of investors movement in the same direction and same time or government intervention
Impact of currency exchange rate changes on reported financial statements
up to date

24. What is a forward rate?
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

25. What is the second characteristic of lag strategy?
u.s. dollar
Establish central control and attempts to forecast future exchange rates
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

26. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Currency of one country can be exchanged for the currency of another country
Goods and services of one country can be exchanged for the goods and services of another country
Paying foreign currency payable before dues as a result expected currency appreciation

27. What is the law of one price?
State driven recapitalization are now needed
Lending of funds in foreign currencies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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

28. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
True
Inflation - interest rate - and market psychology
Borrowing of funds in foreign currency

29. Burger economics!!! Why do we use it?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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)

30. 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
A common reference
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

31. 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
London - New York - Tokyo - and Singapore
Lending of funds in foreign currencies
Affected by fluctuation in foreign exchange values

32. What is a currency swamp?
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
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
up to date

33. 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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Increase currency values and protect against increases in foreign prices of goods and services
Increase their exposure to banking -'s banking center

34. How do you insure or hedge against a 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
Forward exchange or spot exchange
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The income form individual transacations

35. Marekts are open...
1. distribute productive assets 2. ensure assets are not concentrated in countries
24/7
An attempt to collect currency receivables early as result of expected depreciation
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

36. What is the second role of the U.S. dollar outside the U.S. ?
Lending of funds in foreign currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Intervention currency (peg country currency)
Exchange rate policies

37. When do countries use foreign exchange market?
Increase currency values and protect against increases in foreign prices of goods and services
Lead and lag strategies
Vehicle currency(transaction between 2 less commonly used 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

38. What are the important trading centers?
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
London - New York - Tokyo - and Singapore
Goods and services of one country can be exchanged for the goods and services of another country
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

39. What are the first two things that determine Forex rates?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Currency of one country can be exchanged for the currency of another country
24/7
Relative price differences and ppp

40. What are the purposes of fiscal policies?
Lead and lag strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals
Collecting & spending of money by the government
State driven recapitalization are now needed

41. What is the nominal exchange rate?
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
True
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

42. What is the third role of the U.S. dollar outside the U.S.?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Reserve currency
A common reference
Inflation - interest rate - and market psychology

43. What are the three ways of insuring against a Forex risk?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates - forward rates - and swaps
Spot rates and forward rates

44. What are the types of Exchange Rate Fluctuations?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Monetary and fiscal policies
Relative price differences and ppp
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

45. Defaulting on debt has a __________ that intertwines all countries in Europe.
Spot rates and forward rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
domino effect
Group of investors movement in the same direction and same time or government intervention

46. What are other strategies for managing forex risk?
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals

47. What is the first issue with EFSF?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Interest rates and money supply

48. What is the nature of the forex market?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Lending of funds in foreign currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

49. What is the first characteristic of lag strategy?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

50. It is important to stay __________ with your current events
up to date
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Firms future international earning power
Obligations for the purchase or sale of goods and services at previously agreed prices