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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 characteristic of lag strategy?
Exchange rate policies
Affected by fluctuation in foreign exchange values
Delay payables if currency is expected to depreciate
Goods and services of one country can be exchanged for the goods and services of another country

2. What is the second characteristic of lead strategy?
Productivity and balance payments
Paying foreign currency payable before dues as a result expected currency appreciation
Measurement of past events
Transaction - translation and economic exposure

3. Most Transaction inovolve...
Spot rates and forward rates
u.s. dollar
1. distribute productive assets 2. ensure assets are not concentrated in countries
Vehicle currency(transaction between 2 less commonly used currencies)

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

5. What is the bandwagon effect when looking at form investor psychology ?
Banks stability was measure at a 5% capital adequacy ratio
Group of investors movement in the same direction and same time or government intervention
It helps them understand the influence of exchange rates on profitability of trade investment deals
Inflation - interest rate - and market psychology

6. What is the purpose of not concentrating assets in countries?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase currency values and protect against increases in foreign prices of goods and services
Delay payables if currency is expected to depreciate

7. What is non convertible currency?
Forward exchange or spot exchange
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Obligations for the purchase or sale of goods and services at previously agreed prices
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

8. How and What is the purpose of distributing assets?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

9. What are some factors that influence exchange rates?
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
London - New York - Tokyo - and Singapore
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values

10. What is the nominal exchange rate?
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
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

11. What is the real exchange rate?
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
agreed upon austerity
Goods and services of one country can be exchanged for the goods and services of another country
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

12. 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Monetary and fiscal policies
Spot rates - forward rates - and swaps

13. What is a spot rate?
A common reference
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Lead and lag strategies
Spot rates - forward rates - and swaps

14. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rate policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

15. What is the first issue with EFSF?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase currency values and protect against increases in foreign prices of goods and services

16. What are the purposes of fiscal policies?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Monetary and fiscal policies
Collecting & spending of money by the government

17. The euro faces risks fo recapitalization?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The income form individual transacations
Investor psychology
Banks stability was measure at a 5% capital adequacy ratio

18. What is free convertible currency?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Forward exchange or spot exchange
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

19. What are the three ways of insuring against a Forex risk?
Group of investors movement in the same direction and same time or government intervention
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rate policies
Spot rates - forward rates - and swaps

20. What is the nature of the forex market?
Transaction - translation and economic exposure
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
Affected by fluctuation in foreign exchange values

21. What is the fourth thing that determines the forex rates?
Collecting & spending of money by the government
Exchange rate policies
1. distribute productive assets 2. ensure assets are not concentrated in countries
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

22. What are the first two things that determine Forex rates?
Interest rates and money supply
Intervention currency (peg country currency)
Relative price differences and ppp
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

23. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
up to date

24. No single theory can explain explain the causes the value of currencies to change. True or False?
Collecting & spending of money by the government
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
True
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

25. What is the third characteristic of transaction exposure?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Collecting & spending of money by the government
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Borrowing of funds in foreign currency

26. What is the fifth thing that determines the forex rates?
Investor psychology
A common reference
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

27. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
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
Currency of one country can be exchanged for the currency of another country
Control the amount of money in circulation - enforced by government policies - focus on growth rate

28. How do you establish central control?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
up to date

29. 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
Lead and lag strategies
London - New York - Tokyo - and Singapore
Interest rates and money supply

30. What holds true to Purchase Power Parity Theory?
True
Impact of currency exchange rate changes on reported financial statements
Currency of one country can be exchanged for the currency of another country
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

31. What are two methods of reducing translation and transaction exposure?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Lead and lag strategies

32. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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

33. What are the two ways to quote currency?
Measurement of past events
Spot rates and forward rates
Forward exchange or spot exchange
Relative price differences and ppp

34. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Obligations for the purchase or sale of goods and services at previously agreed prices
agreed upon austerity
Impact of currency exchange rate changes on reported financial statements

35. Defaulting on debt has a __________ that intertwines all countries in Europe.
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
Establish central control and attempts to forecast future exchange rates
Lead and lag strategies

36. What are the three different types of foreign exchange rate risks?
Delay payables if currency is expected to depreciate
Delay collection of foreign currency receivables if currency is exception to appreciate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Transaction - translation and economic exposure

37. What is the law of one price?
Collecting & spending of money by the government
Spot rates - forward rates - and swaps
agreed upon austerity
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

38. According to economic theories of exchage rate determination?
Lending of funds in foreign currencies
Increase currency values and protect against increases in foreign prices of goods and services
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Exchange rates are determined by the demand and supply for different currencies

39. What do monetary policies do?
True
u.s. dollar
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth rate

40. What is hedging?

41. What are three factors that impact a country's future exchange rate movements?
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
Inflation - interest rate - and market psychology
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

42. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Issue mo good loans so that profits from new business can eat away the losses form the bad

43. Greece has not defaulted because it has not been able to fully implement its...
Transaction - translation and economic exposure
agreed upon austerity
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

44. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference
London - New York - Tokyo - and Singapore
Lending of funds in foreign currencies

45. What is the second thing that determines the Forex rates?
An attempt to collect currency receivables early as result of expected depreciation
Interest rates and money supply
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase their exposure to banking -'s banking center

46. What are the important trading centers?
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates - forward rates - and swaps
Inflation - interest rate - and market psychology
London - New York - Tokyo - and Singapore

47. What is the fourth roles of the U.S. dollar outside the U.S.?
Inflation - interest rate - and market psychology
Vehicle currency(transaction between 2 less commonly used 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

48. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Intervention currency (peg country currency)
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

49. When do countries use the foreign exchange market?
Reserve currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Establish central control and attempts to forecast future exchange rates
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

50. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Interest rates and money supply
Banks stability was measure at a 5% capital adequacy ratio
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates