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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 the purposes of fiscal policies?
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
Transaction - translation and economic exposure
Relative price differences and ppp

2. What is the real exchange rate?
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Goods and services of one country can be exchanged for the goods and services of another country

3. What do monetary policies do?
Monetary and fiscal policies
Impact of currency exchange rate changes on reported financial statements
Exchange rate policies
Control the amount of money in circulation - enforced by government policies - focus on growth rate

4. What is capital fight when looking at it form investor psychology?
Increase their exposure to banking -'s banking center
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Measurement of past events

5. Defaulting on debt has a __________ that intertwines all countries in Europe.
Increase their exposure to banking -'s banking center
Forward exchange or spot exchange
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
domino effect

6. 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
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
Reserve currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

7. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Intervention currency (peg country currency)
True
An attempt to collect currency receivables early as result of expected depreciation
Delay payables if currency is expected to depreciate

8. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Goods and services of one country can be exchanged for the goods and services of another country
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase their exposure to banking -'s banking center

9. How can transaction exposure be described?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Obligations for the purchase or sale of goods and services at previously agreed prices
The income form individual transacations
Vehicle currency(transaction between 2 less commonly used currencies)

10. What is the third thing that determines the forex rates?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Productivity and balance payments
Measurement of past events
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

11. When do countries use foreign exchange market?
Firms future international earning power
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
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

12. What is free convertible currency?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Interest rates and money supply
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

13. 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
True
Increase currency values and protect against increases in foreign prices of goods and services
Spot rates - forward rates - and swaps

14. Bailout Fund of EFSF - What is this shiz nitz?
Exchange rate policies
Paying foreign currency payable before dues as a result expected currency appreciation
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

15. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
State driven recapitalization are now needed

16. What is a currency swamp?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The income form individual transacations
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

17. 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)
The income form individual transacations
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

18. What are some characteristics of swaps?
24/7
A common reference
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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

19. How can translation exposure be described?
Borrowing of funds in foreign currency
Impact of currency exchange rate changes on reported financial statements
Paying foreign currency payable before dues as a result expected currency appreciation
Inflation - interest rate - and market psychology

20. It is important to stay __________ with your current events
Delay collection of foreign currency receivables if currency is exception to appreciate
agreed upon austerity
up to date
Lending of funds in foreign currencies

21. What is the second characteristic of transaction exposure?
Banks stability was measure at a 5% capital adequacy ratio
Obligations for the purchase or sale of goods and services at previously agreed prices
Collecting & spending of money by the government
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

22. What is the nature of the forex market?
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
domino effect
Establish central control and attempts to forecast future exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

23. How and What is the purpose of distributing assets?
The income form individual transacations
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
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

24. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Banks stability was measure at a 5% capital adequacy ratio
1. distribute productive assets 2. ensure assets are not concentrated in countries
Firms future international earning power

25. How do you insure or hedge against a Forex risk?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by fluctuation in foreign exchange values
Forward exchange or spot exchange

26. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Forward exchange or spot exchange
Currency of one country can be exchanged for the currency of another country
Goods and services of one country can be exchanged for the goods and services of another country

27. 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
Affected by fluctuation in foreign exchange values
Intervention currency (peg country currency)
up to date

28. What are the three different types of foreign exchange rate risks?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Transaction - translation and economic exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals
Goods and services of one country can be exchanged for the goods and services of another country

29. What is the first issue with EFSF?
Firms future international earning power
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
domino effect
Productivity and balance payments

30. What is the first roels of the U.S. dollar outside the U.S.?
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
A common reference
Inflation - interest rate - and market psychology

31. What is the fourth roles of the U.S. dollar outside the U.S.?
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
Group of investors movement in the same direction and same time or government intervention
Measurement of past events
Vehicle currency(transaction between 2 less commonly used currencies)

32. What is the nominal exchange rate?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Affected by fluctuation in foreign exchange values
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

33. What is the fifth thing that determines the forex rates?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Investor psychology
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Relative price differences and ppp

34. What is the second characteristic of lag strategy?
Currency of one country can be exchanged for the currency of another country
Delay payables if currency is expected to depreciate
Forward exchange or spot exchange
Exchange rates are determined by the demand and supply for different currencies

35. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
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
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
Delay collection of foreign currency receivables if currency is exception to appreciate

36. What are the two ways to quote currency?
Spot rates and forward rates
Interest rates and money supply
Issue mo good loans so that profits from new business can eat away the losses form the bad
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

37. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Relative price differences and ppp
Lending of funds in foreign currencies
Measurement of past events

38. When do countries use the foreign exchange market?
Group of investors movement in the same direction and same time or government intervention
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.
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

39. What is the characteristic of translation expose?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Measurement of past events
Obligations for the purchase or sale of goods and services at previously agreed prices
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

40. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Monetary and fiscal policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

41. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Forward exchange or spot exchange
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
Inflation - interest rate - and market psychology

42. What is the first characteristic of lead strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
An attempt to collect currency receivables early as result of expected depreciation
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

43. What is the third role of the U.S. dollar outside the U.S.?
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
Reserve currency
Goods and services of one country can be exchanged for the goods and services of another country
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

44. What is the first characteristic of transaction exposure ?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Affected by fluctuation in foreign exchange values
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
It helps them understand the influence of exchange rates on profitability of trade investment deals

45. What is non convertible currency?
Spot rates - forward rates - and swaps
Monetary and fiscal policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
up to date

46. Most Transaction inovolve...
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
u.s. dollar
Paying foreign currency payable before dues as a result expected currency appreciation

47. What is the fourth thing that determines the forex rates?
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
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
Currency of one country can be exchanged for the currency of another country
Exchange rate policies

48. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
State driven recapitalization are now needed
Firms future international earning power

49. The euro faces risks fo recapitalization?
Inflation - interest rate - and market psychology
Banks stability was measure at a 5% capital adequacy ratio
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

50. What is arbitrage?
Paying foreign currency payable before dues as a result expected currency appreciation
Collecting & spending of money by the government
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Establish central control and attempts to forecast future exchange rates