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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 first roels of the U.S. dollar outside the U.S.?
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
Increase currency values and protect against increases in foreign prices of goods and services
Relative price differences and ppp
A common reference

2. 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
Monetary and fiscal policies
The income form individual transacations

3. What are the characteristics of economic exposure?
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad

4. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
A common reference
Transaction - translation and economic exposure
Goods and services of one country can be exchanged for the goods and services of another country

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

6. What is the second characteristic of lead strategy?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Paying foreign currency payable before dues as a result expected currency appreciation
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

7. What is the third thing that determines the forex 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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Productivity and balance payments
Affected by fluctuation in foreign exchange values

8. What are two methods of reducing translation and transaction exposure?
Goods and services of one country can be exchanged for the goods and services of another country
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply
Lead and lag strategies

9. What are other strategies for managing forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Investor psychology
The income form individual transacations
24/7

10. What causes big mac prices to vary?
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
Currency of one country can be exchanged for the currency of another country
Measurement of past events
Transportation costs - trade barriers - and not trade inputs such as rents or wages

11. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Exchange rate policies
Intervention currency (peg country currency)

12. What is a spot rate?
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Increase their exposure to banking -'s banking center
True

13. 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
Delay payables if currency is expected to depreciate
Lead and lag strategies
Interest rates and money supply

14. What is the fourth thing that determines the forex rates?
Exchange rate policies
Collecting & spending of money by the government
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

15. What is the second characteristic of transaction exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Obligations for the purchase or sale of goods and services at previously agreed prices
1. distribute productive assets 2. ensure assets are not concentrated in countries
Forward exchange or spot exchange

16. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Obligations for the purchase or sale of goods and services at previously agreed prices
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Intervention currency (peg country currency)

17. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals
Exchange rates are determined by the demand and supply for different currencies

18. Defaulting on debt has a __________ that intertwines all countries in Europe.
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
domino effect
Delay payables if currency is expected to depreciate
London - New York - Tokyo - and Singapore

19. Marekts are open...
Establish central control and attempts to forecast future exchange rates
24/7
Monetary and fiscal policies
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

20. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Investor psychology
u.s. dollar

21. What is the characteristic of translation expose?
Interest rates and money supply
Collecting & spending of money by the government
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Measurement of past events

22. What is the third role of the U.S. dollar outside the U.S.?
Productivity and balance payments
Affected by fluctuation in foreign exchange values
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
Reserve currency

23. No single theory can explain explain the causes the value of currencies to change. True or False?
Intervention currency (peg country currency)
True
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

24. What is the first characteristic of transaction exposure ?
domino effect
Affected by fluctuation in foreign exchange values
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Goods and services of one country can be exchanged for the goods and services of another country

25. Burger economics!!! Why do we use it?
True
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
Paying foreign currency payable before dues as a result expected currency appreciation

26. What is economic exposure?
Impact of currency exchange rate changes on reported financial statements
Firms future international earning power
agreed upon austerity
Banks stability was measure at a 5% capital adequacy ratio

27. What is the second thing that determines the Forex rates?
Affected by fluctuation in foreign exchange values
Exchange rate policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply

28. The euro faces risks fo recapitalization?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Lending of funds in foreign currencies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Banks stability was measure at a 5% capital adequacy ratio

29. What are the purposes of fiscal policies?
Paying foreign currency payable before dues as a result expected currency appreciation
1. distribute productive assets 2. ensure assets are not concentrated in countries
Transaction - translation and economic exposure
Collecting & spending of money by the government

30. 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
Delay collection of foreign currency receivables if currency is exception to appreciate
Delay payables if currency is expected to depreciate
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

31. When do countries use foreign exchange market?
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Inflation - interest rate - and market psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

32. What is the purpose of not concentrating assets in countries?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates
Increase currency values and protect against increases in foreign prices of goods and services

33. What is the law of one price?
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
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
Productivity and balance payments
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

34. What is the nature of the forex market?
Affected by fluctuation in foreign exchange values
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
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

35. What are the three ways of insuring against a Forex risk?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Obligations for the purchase or sale of goods and services at previously agreed prices
Spot rates - forward rates - and swaps
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

36. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
1. distribute productive assets 2. ensure assets are not concentrated in countries
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

37. Bailout Fund of EFSF - What is this shiz nitz?
Transaction - translation and economic exposure
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
A common reference

38. When do countries use the foreign exchange market?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Group of investors movement in the same direction and same time or government intervention
Borrowing of funds in foreign currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

39. What is the first issue with EFSF?
Collecting & spending of money by the government
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

40. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Goods and services of one country can be exchanged for the goods and services of another country
Issue mo good loans so that profits from new business can eat away the losses form the bad
Relative price differences and ppp

41. What are some strategies for managing forex risk?
domino effect
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Establish central control and attempts to forecast future exchange rates
Collecting & spending of money by the government

42. What is a forward rate?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
domino effect
Delay collection of foreign currency receivables if currency is exception to appreciate

43. What are the three different types of foreign exchange rate risks?
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
Transaction - translation and economic exposure
Firms future international earning power
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

44. What is the first characteristic of lag strategy?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Delay collection of foreign currency receivables if currency is exception to appreciate
agreed upon austerity
up to date

45. What is free convertible currency?
Investor psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Currency of one country can be exchanged for the currency of another country
Borrowing of funds in foreign currency

46. What is the fourth characteristic of transaction exposure?
An attempt to collect currency receivables early as result of expected depreciation
Exchange rate policies
Monetary and fiscal policies
Lending of funds in foreign currencies

47. What is a currency swamp?
Monetary and fiscal policies
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

48. Most Transaction inovolve...
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
u.s. dollar
Firms future international earning power
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

49. What is capital fight when looking at it form investor psychology?
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Inflation - interest rate - and market psychology

50. What is the fifth thing that determines the forex rates?
Investor psychology
Delay collection of foreign currency receivables if currency is exception to appreciate
Impact of currency exchange rate changes on reported financial statements
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps