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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 three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Issue mo good loans so that profits from new business can eat away the losses form the bad
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

2. 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
Borrowing of funds in foreign currency
Group of investors movement in the same direction and same time or government intervention
Exchange rate policies

3. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies

4. Marekts are open...
24/7
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

5. What is a forward rate?
Lead and lag strategies
Productivity and balance payments
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
agreed upon austerity

6. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Inflation - interest rate - and market psychology
Measurement of past events
True
It helps them understand the influence of exchange rates on profitability of trade investment deals

7. It is important to stay __________ with your current events
up to date
Borrowing of funds in foreign currency
domino effect
Goods and services of one country can be exchanged for the goods and services of another country

8. What is the first roels of the U.S. dollar outside the U.S.?
agreed upon austerity
A common reference
u.s. dollar
Lead and lag strategies

9. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
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
Affected by fluctuation in foreign exchange values
Exchange rates are determined by the demand and supply for different currencies

10. Most Transaction inovolve...
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
u.s. dollar

11. 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Establish central control and attempts to forecast future exchange rates
1. distribute productive assets 2. ensure assets are not concentrated in countries

12. How can transaction exposure be described?
The income form individual transacations
Paying foreign currency payable before dues as a result expected currency appreciation
London - New York - Tokyo - and Singapore
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

13. What is the fourth thing that determines the forex rates?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Group of investors movement in the same direction and same time or government intervention
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies

14. How can translation exposure be described?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Impact of currency exchange rate changes on reported financial statements
Delay payables if currency is expected to depreciate
True

15. What is the second characteristic of lag strategy?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Delay payables if currency is expected to depreciate
An attempt to collect currency receivables early as result of expected depreciation
Obligations for the purchase or sale of goods and services at previously agreed prices

16. What is the characteristic of translation expose?
Measurement of past events
Productivity and balance payments
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Banks stability was measure at a 5% capital adequacy ratio

17. What is the first characteristic of lag strategy?
up to date
Obligations for the purchase or sale of goods and services at previously agreed prices
Measurement of past events
Delay collection of foreign currency receivables if currency is exception to appreciate

18. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Forward exchange or spot exchange
The income form individual transacations
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

19. How do you establish central control?
State driven recapitalization are now needed
Relative price differences and ppp
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Intervention currency (peg country currency)

20. When do countries use foreign exchange market?
Goods and services of one country can be exchanged for the goods and services of another country
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
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
Exchange rate policies

21. What is a currency swamp?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Banks stability was measure at a 5% capital adequacy ratio

22. What is the third characteristic of transaction exposure?
Investor psychology
Exchange rates are determined by the demand and supply for different currencies
Borrowing of funds in foreign currency
Transaction - translation and economic exposure

23. What are some strategies for managing forex risk?
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
Establish central control and attempts to forecast future exchange rates
1. distribute productive assets 2. ensure assets are not concentrated in countries

24. What is the third thing that determines the forex rates?
Large number of individuals and cos exchange of domestic currencies for a foreign 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
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
Productivity and balance payments

25. What is the real exchange rate?
u.s. dollar
Goods and services of one country can be exchanged for the goods and services of another country
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

26. What is the second characteristic of transaction exposure?
up to date
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
Obligations for the purchase or sale of goods and services at previously agreed prices
State driven recapitalization are now needed

27. 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.
Paying foreign currency payable before dues as a result expected currency appreciation
Establish central control and attempts to forecast future exchange rates
Reserve currency

28. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Paying foreign currency payable before dues as a result expected currency appreciation
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

29. What is the nominal exchange rate?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Currency of one country can be exchanged for the currency of another country
u.s. dollar
Lead and lag strategies

30. What are the important trading centers?
The income form individual transacations
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
London - New York - Tokyo - and Singapore
Measurement of past events

31. What are the two ways to reduce economic exposure?
Vehicle currency(transaction between 2 less commonly used currencies)
1. distribute productive assets 2. ensure assets are not concentrated in countries
Currency of one country can be exchanged for the currency of another country
Interest rates and money supply

32. What are the three different types of foreign exchange rate risks?
Delay collection of foreign currency receivables if currency is exception to appreciate
Transaction - translation and economic exposure
True
Spot rates and forward rates

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

34. What do monetary policies do?
Spot rates - forward rates - and swaps
Exchange rates are determined by the demand and supply for different currencies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Control the amount of money in circulation - enforced by government policies - focus on growth rate

35. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Delay payables if currency is expected to depreciate
State driven recapitalization are now needed
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

36. How do you insure or hedge against a Forex risk?
Intervention currency (peg country currency)
Forward exchange or spot exchange
Reserve currency
Vehicle currency(transaction between 2 less commonly used currencies)

37. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
True
Reserve currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

38. Burger economics!!! Why do we use it?
Relative price differences and ppp
Vehicle currency(transaction between 2 less commonly used currencies)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Monetary and fiscal policies

39. No single theory can explain explain the causes the value of currencies to change. True or False?
It helps them understand the influence of exchange rates on profitability of trade investment deals
True
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

40. What is the first characteristic of transaction exposure ?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
True
agreed upon austerity
Affected by fluctuation in foreign exchange values

41. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Borrowing of funds in foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
State driven recapitalization are now needed

42. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
up to date
Currency of one country can be exchanged for the currency of another country
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

43. What are other strategies for managing forex risk?
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
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

44. What holds true to Purchase Power Parity Theory?
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Reserve 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

45. What is the third role of the U.S. dollar outside the U.S.?
London - New York - Tokyo - and Singapore
Delay collection of foreign currency receivables if currency is exception to appreciate
Group of investors movement in the same direction and same time or government intervention
Reserve currency

46. What is the fourth characteristic of transaction exposure?
True
Obligations for the purchase or sale of goods and services at previously agreed prices
Lending of funds in foreign currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

47. Defaulting on debt has a __________ that intertwines all countries in Europe.
True
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
Impact of currency exchange rate changes on reported financial statements

48. How and What is the purpose of distributing assets?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Group of investors movement in the same direction and same time or government intervention
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Impact of currency exchange rate changes on reported financial statements

49. What is non convertible currency?
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad
Borrowing of funds in foreign currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

50. What are some factors that influence exchange rates?
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
Paying foreign currency payable before dues as a result expected currency appreciation
Supply & demand of the currency -Interest rates -Inflation -Investor expectations