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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 non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
London - New York - Tokyo - and Singapore
Currency of one country can be exchanged for the currency of another country
Spot rates and forward rates

2. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Delay payables if currency is expected to depreciate
domino effect
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

3. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Measurement of past events
Issue mo good loans so that profits from new business can eat away the losses form the bad
Lending of funds in foreign currencies
Collecting & spending of money by the government

4. What holds true to Purchase Power Parity Theory?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates - forward rates - and swaps

5. What are the purposes of fiscal policies?
24/7
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
An attempt to collect currency receivables early as result of expected depreciation
Collecting & spending of money by the government

6. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
Exchange rate policies
Spot rates and forward rates
Goods and services of one country can be exchanged for the goods and services of another country

7. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
True
Exchange rate 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

8. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Investor psychology
Collecting & spending of money by the government
Delay payables if currency is expected to depreciate

9. What causes big mac prices to vary?
State driven recapitalization are now needed
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

10. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Productivity and balance payments
True
Increase currency values and protect against increases in foreign prices of goods and services

11. 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
domino effect
Lead and lag strategies
Spot rates - forward rates - and swaps

12. What is the first issue with EFSF?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
True
Paying foreign currency payable before dues as a result expected currency appreciation

13. What is the bandwagon effect when looking at form investor psychology ?
Relative price differences and ppp
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
Borrowing of funds in foreign currency

14. What is the second issue with EFSF?
Productivity and balance payments
Banks stability was measure at a 5% capital adequacy ratio
Reserve 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

15. What is capital fight when looking at it form investor psychology?
Inflation - interest rate - and market psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Banks stability was measure at a 5% capital adequacy ratio
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

16. What is the fifth thing that determines the forex rates?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Investor psychology
Paying foreign currency payable before dues as a result expected currency appreciation

17. Bailout Fund of EFSF - What is this shiz nitz?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Interest rates and money supply
Delay collection of foreign currency receivables if currency is exception to appreciate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

18. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
An attempt to collect currency receivables early as result of expected depreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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

19. When do countries use the foreign exchange market?
Lending of funds in foreign currencies
up to date
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

20. The euro faces risks fo recapitalization?
Spot rates - forward rates - and swaps
True
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Banks stability was measure at a 5% capital adequacy ratio

21. What is free convertible currency?
up to date
Investor psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

22. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Banks stability was measure at a 5% capital adequacy ratio
Increase currency values and protect against increases in foreign prices of goods and services
u.s. dollar

23. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

24. What is the first characteristic of lag strategy?
True
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase their exposure to banking -'s banking center

25. How and What is the purpose of distributing assets?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Monetary and fiscal policies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Relative price differences and ppp

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

27. What are some factors that influence exchange rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Forward exchange or spot exchange
Transaction - translation and economic exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

28. What is the purpose of not concentrating assets in countries?
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
Increase currency values and protect against increases in foreign prices of goods and services
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Issue mo good loans so that profits from new business can eat away the losses form the bad

29. What is the law of one price?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Increase their exposure to banking -'s banking center

30. What is the first characteristic of lead strategy?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
An attempt to collect currency receivables early as result of expected depreciation

31. What is a forward rate?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate

32. What is the characteristic of translation expose?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Measurement of past events
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

33. What is the nature of the forex market?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
True
1. distribute productive assets 2. ensure assets are not concentrated in countries

34. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Intervention currency (peg country currency)
domino effect

35. What is the second characteristic of lag strategy?
An attempt to collect currency receivables early as result of expected depreciation
Firms future international earning power
Delay payables if currency is expected to depreciate
Currency of one country can be exchanged for the currency of another country

36. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Vehicle currency(transaction between 2 less commonly used currencies)
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
Measurement of past events

37. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Relative price differences and ppp
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Investor psychology

38. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference
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

39. What are the types of Exchange Rate Fluctuations?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Monetary and fiscal policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

40. What is a spot rate?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Collecting & spending of money by the government
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
up to date

41. Marekts are open...
24/7
Collecting & spending of money by the government
up to date
Monetary and fiscal policies

42. How can transaction exposure be described?
The income form individual transacations
Impact of currency exchange rate changes on reported financial statements
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

43. What are some characteristics of swaps?
Relative price differences and ppp
True
Obligations for the purchase or sale of goods and services at previously agreed prices
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

44. Burger economics!!! Why do we use it?
Spot rates - forward rates - and swaps
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
domino effect
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

45. 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
Increase currency values and protect against increases in foreign prices of goods and services
u.s. dollar
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

46. What are the three ways of insuring against a Forex risk?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True
Increase their exposure to banking -'s banking center
Spot rates - forward rates - and swaps

47. What is the fourth characteristic of transaction exposure?
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
Lending of funds in foreign currencies
Goods and services of one country can be exchanged for the goods and services of another country

48. What are the characteristics of economic exposure?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country

49. What is hedging?

50. What is the first roels of the U.S. dollar outside the U.S.?
Productivity and balance payments
Firms future international earning power
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
A common reference