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Foreign Exchange Market
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Subjects
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business-skills
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industries
Instructions:
Answer 50 questions in 15 minutes.
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study here
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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 first characteristic of lag strategy?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Exchange rates are determined by the demand and supply for different currencies
Affected by fluctuation in foreign exchange values
Delay collection of foreign currency receivables if currency is exception to appreciate
2. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
Spot rates and forward rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Exchange rates are determined by the demand and supply for different currencies
3. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Lending of funds in foreign currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
domino effect
4. What are the two ways to quote currency?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Spot rates and forward rates
Borrowing of funds in foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
5. What are the two ways to reduce economic exposure?
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
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
A common reference
6. What is the fourth characteristic of transaction exposure?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments
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
Lending of funds in foreign currencies
7. What holds true to Purchase Power Parity Theory?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Transaction - translation and economic exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
8. What is the fourth roles of the U.S. dollar outside the U.S.?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Intervention currency (peg country currency)
Vehicle currency(transaction between 2 less commonly used currencies)
It helps them understand the influence of exchange rates on profitability of trade investment deals
9. How can transaction exposure be described?
The income form individual transacations
Impact of currency exchange rate changes on reported financial statements
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Group of investors movement in the same direction and same time or government intervention
10. 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
24/7
11. 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
12. What causes big mac prices to vary?
Inflation - interest rate - and market psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Transportation costs - trade barriers - and not trade inputs such as rents or wages
13. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rates are determined by the demand and supply for different currencies
Firms future international earning power
Measurement of past events
14. The euro faces risks fo recapitalization?
Inflation - interest rate - and market psychology
Banks stability was measure at a 5% capital adequacy ratio
True
Lending of funds in foreign currencies
15. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply
Productivity and balance payments
Borrowing of funds in foreign currency
16. Because of the recessionary environment euro banks have failed to do what?
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17. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Increase their exposure to banking -'s banking center
Spot rates - forward rates - and swaps
London - New York - Tokyo - and Singapore
18. What are the three ways of insuring against a Forex risk?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
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. 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
19. What implications does understanding foreign exchange rates have on managers?
Goods and services of one country can be exchanged for the goods and services of another country
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
Increase currency values and protect against increases in foreign prices of goods and services
20. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Obligations for the purchase or sale of goods and services at previously agreed prices
Collecting & spending of money by the government
Exchange rates are determined by the demand and supply for different currencies
21. What is the nominal exchange rate?
Lead and lag strategies
Interest rates and money supply
Transaction - translation and economic exposure
Currency of one country can be exchanged for the currency of another country
22. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The income form individual transacations
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
23. What is the first characteristic of lead strategy?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
domino effect
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation
24. When do countries use foreign exchange market?
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Paying foreign currency payable before dues as a result expected currency appreciation
25. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
u.s. dollar
Issue mo good loans so that profits from new business can eat away the losses form the bad
26. What are the important trading centers?
domino effect
London - New York - Tokyo - and Singapore
Group of investors movement in the same direction and same time or government intervention
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
27. 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
Spot rates - forward rates - and swaps
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
28. Bailout Fund of EFSF - What is this shiz nitz?
The income form individual transacations
It helps them understand the influence of exchange rates on profitability of trade investment deals
Investor psychology
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
29. What are the three different types of foreign exchange rate risks?
Obligations for the purchase or sale of goods and services at previously agreed prices
Transaction - translation and economic exposure
Forward exchange or spot exchange
Inflation - interest rate - and market psychology
30. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Affected by fluctuation in foreign exchange values
Lead and lag strategies
Goods and services of one country can be exchanged for the goods and services of another country
State driven recapitalization are now needed
31. How can translation exposure be described?
Paying foreign currency payable before dues as a result expected currency appreciation
Firms future international earning power
Impact of currency exchange rate changes on reported financial statements
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
32. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Group of investors movement in the same direction and same time or government intervention
Goods and services of one country can be exchanged for the goods and services of another country
Lending of funds in foreign currencies
33. What is the third thing that determines the forex rates?
Currency of one country can be exchanged for the currency of another country
Productivity and balance payments
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
Firms future international earning power
34. What is the second characteristic of transaction exposure?
Measurement of past events
Obligations for the purchase or sale of goods and services at previously agreed prices
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Reserve currency
35. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase currency values and protect against increases in foreign prices of goods and services
36. What is the third role of the U.S. dollar outside the U.S.?
agreed upon austerity
Reserve currency
Transaction - translation and economic exposure
Exchange rate policies
37. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Relative price differences and ppp
Issue mo good loans so that profits from new business can eat away the losses form the bad
Increase currency values and protect against increases in foreign prices of goods and services
38. What is a spot rate?
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
Increase their exposure to banking -'s banking center
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)
39. What is the first characteristic of transaction exposure ?
Intervention currency (peg country currency)
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
Affected by fluctuation in foreign exchange values
Paying foreign currency payable before dues as a result expected currency appreciation
40. What is the second characteristic of lead strategy?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rates are determined by the demand and supply for different currencies
Collecting & spending of money by the government
Paying foreign currency payable before dues as a result expected currency appreciation
41. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar
Transaction - translation and economic 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
42. What is economic exposure?
Delay payables if currency is expected to depreciate
London - New York - Tokyo - and Singapore
Firms future international earning power
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
43. What is the fourth thing that determines the forex rates?
Intervention currency (peg country currency)
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad
Collecting & spending of money by the government
44. What are other strategies for managing forex risk?
Inflation - interest rate - and market psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Currency of one country can be exchanged for the currency of another country
Borrowing of funds in foreign currency
45. What are the first two things that determine Forex rates?
Relative price differences and ppp
Productivity and balance payments
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Monetary and fiscal policies
46. What is the first issue with EFSF?
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
Intervention currency (peg country currency)
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 process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
47. What is capital fight when looking at it form investor psychology?
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
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
48. What are the purposes of fiscal policies?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Collecting & spending of money by the government
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp
49. What are two methods of reducing translation and transaction exposure?
Collecting & spending of money by the government
Forward exchange or spot exchange
Currency of one country can be exchanged for the currency of another country
Lead and lag strategies
50. Most Transaction inovolve...
Borrowing of funds in foreign currency
u.s. dollar
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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