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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. How can translation exposure be described?
Banks stability was measure at a 5% capital adequacy ratio
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Impact of currency exchange rate changes on reported financial statements
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

2. What are the two ways to quote currency?
Reserve currency
Relative price differences and ppp
Affected by fluctuation in foreign exchange values
Spot rates and forward rates

3. When do countries use the foreign exchange market?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals
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

4. What is the first characteristic of lead strategy?
Increase their exposure to banking -'s banking center
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
An attempt to collect currency receivables early as result of expected depreciation
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

5. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
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

6. What is the bandwagon effect when looking at form investor psychology ?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
London - New York - Tokyo - and Singapore
Group of investors movement in the same direction and same time or government intervention

7. What are the three different types of foreign exchange rate risks?
Investor psychology
Vehicle currency(transaction between 2 less commonly used currencies)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transaction - translation and economic exposure

8. Greece has not defaulted because it has not been able to fully implement its...
Lead and lag strategies
Collecting & spending of money by the government
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
agreed upon austerity

9. What are some strategies for managing forex risk?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Exchange rates are determined by the demand and supply for different currencies
Establish central control and attempts to forecast future exchange rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

10. How do you establish central control?
The income form individual transacations
Spot rates and forward rates
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

11. What is the second characteristic of lag strategy?
24/7
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
agreed upon austerity
Delay payables if currency is expected to depreciate

12. What are two methods of reducing translation and transaction exposure?
Increase their exposure to banking -'s banking center
Relative price differences and ppp
Lead and lag strategies
Banks stability was measure at a 5% capital adequacy ratio

13. 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
domino effect
Measurement of past events
Transaction - translation and economic exposure

14. What is the law of one price?
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
domino effect
True

15. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Transaction - translation and economic exposure
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

16. Marekts are open...
24/7
Group of investors movement in the same direction and same time or government intervention
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates - forward rates - and swaps

17. What is the first characteristic of transaction exposure ?
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Delay payables if currency is expected to depreciate

18. What are some characteristics of swaps?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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
An attempt to collect currency receivables early as result of expected depreciation

19. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

20. What implications does understanding foreign exchange rates have on managers?
Impact of currency exchange rate changes on reported financial statements
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
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

21. What is non convertible currency?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Firms future international earning power
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

22. Defaulting on debt has a __________ that intertwines all countries in Europe.
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rate policies
domino effect
up to date

23. What are the types of Exchange Rate Fluctuations?
Forward exchange or spot exchange
Monetary and fiscal policies
Exchange rate policies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

24. Most Transaction inovolve...
Relative price differences and ppp
Transaction - translation and economic exposure
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
u.s. dollar

25. What is hedging?

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26. What is free convertible currency?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Group of investors movement in the same direction and same time or government intervention
Large number of individuals and cos exchange of domestic currencies for a foreign currency

27. What are other strategies for managing forex risk?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Borrowing of funds in foreign currency

28. What is the characteristic of translation expose?
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
Measurement of past events
Collecting & spending of money by the government
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

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

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30. What is a spot rate?
Increase currency values and protect against increases in foreign prices of goods and services
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
State driven recapitalization are now needed

31. It is important to stay __________ with your current events
Increase their exposure to banking -'s banking center
True
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
up to date

32. What is the second thing that determines the Forex rates?
Interest rates and money supply
Forward exchange or spot exchange
Relative price differences and ppp
An attempt to collect currency receivables early as result of expected depreciation

33. What are the three ways of insuring against a Forex risk?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
u.s. dollar
Spot rates - forward rates - and swaps

34. What is the nature of the forex market?
True
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

35. What is the purpose of not concentrating assets in countries?
Delay payables if currency is expected to depreciate
domino effect
Exchange rates are determined by the demand and supply for different currencies
Increase currency values and protect against increases in foreign prices of goods and services

36. What is the fifth thing that determines the forex rates?
Investor psychology
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

37. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Increase currency values and protect against increases in foreign prices of goods and services
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
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

38. What is the third role of the U.S. dollar outside the U.S.?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Reserve currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase currency values and protect against increases in foreign prices of goods and services

39. What are the important trading centers?
London - New York - Tokyo - and Singapore
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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
Firms future international earning power

40. What is a currency swamp?
It helps them understand the influence of exchange rates on profitability of trade investment deals
True
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Interest rates and money supply

41. How do you insure or hedge against a Forex risk?
Monetary and fiscal policies
Banks stability was measure at a 5% capital adequacy ratio
Forward exchange or spot exchange
Paying foreign currency payable before dues as a result expected currency appreciation

42. 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
State driven recapitalization are now needed
Interest rates and money supply
Measurement of past events

43. When do countries use foreign exchange market?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
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
Monetary and fiscal policies

44. What is capital fight when looking at it form investor psychology?
Measurement of past events
The income form individual transacations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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

45. How can transaction exposure be described?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies
domino effect

46. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The income form individual transacations
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

47. 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
Paying foreign currency payable before dues as a result expected currency appreciation
Interest rates and money supply
The income form individual transacations

48. What do monetary policies do?
Group of investors movement in the same direction and same time or government intervention
London - New York - Tokyo - and Singapore
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

49. What is the fourth characteristic of transaction exposure?
Group of investors movement in the same direction and same time or government intervention
Lending of funds in foreign currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

50. What is the first roels of the U.S. dollar outside the U.S.?
Exchange rate policies
up to date
A common reference
Investor psychology