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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 second issue with EFSF?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a 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
Spot rates - forward rates - and swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals

2. How do you insure or hedge against a Forex risk?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Forward exchange or spot exchange
Establish central control and attempts to forecast future exchange rates

3. When do countries use foreign exchange market?
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
Monetary and fiscal policies
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
Banks stability was measure at a 5% capital adequacy ratio

4. No single theory can explain explain the causes the value of currencies to change. True or False?
Investor psychology
True
up to date
Impact of currency exchange rate changes on reported financial statements

5. What is the third characteristic of transaction exposure?
Affected by fluctuation in foreign exchange values
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Issue mo good loans so that profits from new business can eat away the losses form the bad
Borrowing of funds in foreign currency

6. What is the characteristic of translation expose?
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Borrowing of funds in foreign currency

7. 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
Relative price differences and ppp
Forward exchange or spot exchange
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

8. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
An attempt to collect currency receivables early as result of expected depreciation
Monetary and fiscal policies
Impact of currency exchange rate changes on reported financial statements

9. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

10. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Delay payables if currency is expected to depreciate
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
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

11. What is the fourth roles of the U.S. dollar outside the U.S.?
Transaction - translation and economic exposure
Obligations for the purchase or sale of goods and services at previously agreed prices
Vehicle currency(transaction between 2 less commonly used currencies)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

12. Greece has not defaulted because it has not been able to fully implement its...
Spot rates and forward rates
agreed upon austerity
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Exchange rate policies

13. Marekts are open...
24/7
u.s. dollar
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Increase currency values and protect against increases in foreign prices of goods and services

14. What are some strategies for managing forex risk?
Spot rates and forward rates
Investor psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Establish central control and attempts to forecast future exchange rates

15. What is the third role of the U.S. dollar outside the U.S.?
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Reserve currency
Issue mo good loans so that profits from new business can eat away the losses form the bad

16. What implications does understanding foreign exchange rates have on managers?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

17. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Lending of funds in foreign currencies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
domino effect

18. What is the bandwagon effect when looking at form investor psychology ?
The income form individual transacations
Group of investors movement in the same direction and same time or government intervention
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Impact of currency exchange rate changes on reported financial statements

19. What is the first characteristic of lead strategy?
London - New York - Tokyo - and Singapore
True
An attempt to collect currency receivables early as result of expected depreciation
Borrowing of funds in foreign currency

20. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Establish central control and attempts to forecast future exchange rates
True

21. What is the fifth thing that determines the forex rates?
Impact of currency exchange rate changes on reported financial statements
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Increase currency values and protect against increases in foreign prices of goods and services
Investor psychology

22. What is the second role of the U.S. dollar outside the U.S. ?
London - New York - Tokyo - and Singapore
Intervention currency (peg country currency)
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates

23. What is the nature of the forex market?
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
Investor psychology
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

24. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Lending of funds in foreign currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Issue mo good loans so that profits from new business can eat away the losses form the bad
Transaction - translation and economic exposure

25. What is a currency swamp?
Delay collection of foreign currency receivables if currency is exception to appreciate
Firms future international earning power
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

26. What is the nominal exchange rate?
u.s. dollar
The income form individual transacations
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
Currency of one country can be exchanged for the currency of another country

27. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Borrowing of funds in foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. distribute productive assets 2. ensure assets are not concentrated in countries

28. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
agreed upon austerity
Inflation - interest rate - and market psychology

29. What are the first two things that determine Forex rates?
Relative price differences and ppp
A common reference
Banks stability was measure at a 5% capital adequacy ratio
Affected by fluctuation in foreign exchange values

30. What are the two ways to reduce economic exposure?
Exchange rates are determined by the demand and supply for different currencies
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Large number of individuals and cos exchange of domestic currencies for a foreign currency

31. Bailout Fund of EFSF - What is this shiz nitz?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates and forward rates

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

33. What is the second thing that determines the Forex rates?
Group of investors movement in the same direction and same time or government intervention
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Interest rates and money supply
Affected by fluctuation in foreign exchange values

34. Burger economics!!! Why do we use it?
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

35. It is important to stay __________ with your current events
Productivity and balance payments
True
Vehicle currency(transaction between 2 less commonly used currencies)
up to date

36. What is arbitrage?
Interest rates and money supply
agreed upon austerity
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
It helps them understand the influence of exchange rates on profitability of trade investment deals

37. What is the second characteristic of transaction exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
It helps them understand the influence of exchange rates on profitability of trade investment deals
Obligations for the purchase or sale of goods and services at previously agreed prices
Currency of one country can be exchanged for the currency of another country

38. What are the characteristics of economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

39. When do countries use the foreign exchange market?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

40. What are the three ways of insuring against a Forex risk?
Increase their exposure to banking -'s banking center
A common reference
Banks stability was measure at a 5% capital adequacy ratio
Spot rates - forward rates - and swaps

41. What is economic exposure?
Productivity and balance payments
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
Firms future international earning power

42. What is the first characteristic of lag strategy?
Exchange rates are determined by the demand and supply for different currencies
Delay collection of foreign currency receivables if currency is exception to appreciate
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

43. What are the important trading centers?
Collecting & spending of money by the government
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. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
London - New York - Tokyo - and Singapore

44. What is hedging?

45. What is a spot rate?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Lead and lag strategies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Delay collection of foreign currency receivables if currency is exception to appreciate

46. What are some characteristics of swaps?
Intervention currency (peg country currency)
Spot rates - forward rates - and swaps
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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

47. What is capital fight when looking at it form investor psychology?
State driven recapitalization are now needed
True
Lending of funds in foreign currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

48. What holds true to Purchase Power Parity Theory?
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
An attempt to collect currency receivables early as result of expected depreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

49. What are the purposes of fiscal policies?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Collecting & spending of money by the government

50. What are some factors that influence exchange rates?
Delay collection of foreign currency receivables if currency is exception to appreciate
Inflation - interest rate - and market psychology
Obligations for the purchase or sale of goods and services at previously agreed prices
Supply & demand of the currency -Interest rates -Inflation -Investor expectations