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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 other strategies for managing forex risk?
Lending of funds in foreign currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The income form individual transacations

2. What is the second role of the U.S. dollar outside the U.S. ?
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.
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Intervention currency (peg country currency)

3. How do you insure or hedge against a Forex risk?
1. distribute productive assets 2. ensure assets are not concentrated in countries
24/7
Forward exchange or spot exchange
Lending of funds in foreign currencies

4. What is the first characteristic of lead strategy?
Establish central control and attempts to forecast future exchange rates
Increase their exposure to banking -'s banking center
agreed upon austerity
An attempt to collect currency receivables early as result of expected depreciation

5. 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
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.
1. distribute productive assets 2. ensure assets are not concentrated in countries

6. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
Exchange rate policies
Forward exchange or spot exchange
Obligations for the purchase or sale of goods and services at previously agreed prices

7. What are the three ways of insuring against a Forex risk?
Vehicle currency(transaction between 2 less commonly used currencies)
Delay payables if currency is expected to depreciate
Spot rates - forward rates - and swaps
Impact of currency exchange rate changes on reported financial statements

8. What are the two ways to reduce economic exposure?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Impact of currency exchange rate changes on reported financial statements
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. distribute productive assets 2. ensure assets are not concentrated in countries

9. What are some characteristics of swaps?
Exchange rate policies
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
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

10. What is the third role of the U.S. dollar outside the U.S.?
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
Reserve currency
Impact of currency exchange rate changes on reported financial statements

11. How can translation exposure be described?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Impact of currency exchange rate changes on reported financial statements
Group of investors movement in the same direction and same time or government intervention
Transaction - translation and economic exposure

12. According to economic theories of exchage rate determination?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Borrowing of funds in foreign currency
Impact of currency exchange rate changes on reported financial statements
Exchange rates are determined by the demand and supply for different currencies

13. What is capital fight when looking at it form investor psychology?
Obligations for the purchase or sale of goods and services at previously agreed prices
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Group of investors movement in the same direction and same time or government intervention

14. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
An attempt to collect currency receivables early as result of expected depreciation
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Intervention currency (peg country currency)

15. What is the second thing that determines the Forex rates?
Interest rates and money supply
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
True
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

16. What is a forward rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
London - New York - Tokyo - and Singapore

17. What is the fourth characteristic of transaction exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Lending of funds in foreign currencies
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

18. How do you establish central control?
Lead and lag strategies
Affected by fluctuation in foreign exchange values
u.s. dollar
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

19. What is the first issue with EFSF?
up to date
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Interest rates and money supply
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

20. What is the second characteristic of lead strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
State driven recapitalization are now needed
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Paying foreign currency payable before dues as a result expected currency appreciation

21. What is 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
u.s. dollar
Productivity and balance payments
Firms future international earning power

22. It is important to stay __________ with your current events
Exchange rate policies
Firms future international earning power
up to date
Paying foreign currency payable before dues as a result expected currency appreciation

23. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Banks stability was measure at a 5% capital adequacy ratio
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
1. distribute productive assets 2. ensure assets are not concentrated in countries

24. 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
Reserve currency
A common reference
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

25. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Intervention currency (peg country currency)
Monetary and fiscal policies

26. What are the first two things that determine Forex rates?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The income form individual transacations
Relative price differences and ppp
24/7

27. What is the purpose of not concentrating assets in countries?
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
True
Productivity and balance payments

28. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
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.
Lending of funds in foreign currencies

29. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Group of investors movement in the same direction and same time or government intervention
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

30. What are the important trading centers?
24/7
Delay payables if currency is expected to depreciate
London - New York - Tokyo - and Singapore
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

31. What holds true to Purchase Power Parity Theory?
domino effect
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
Intervention currency (peg country currency)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

32. 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
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
Establish central control and attempts to forecast future exchange rates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

33. What is free convertible currency?
agreed upon austerity
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Inflation - interest rate - and market psychology
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

34. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country
Delay payables if currency is expected to depreciate

35. What is the nominal exchange rate?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Collecting & spending of money by the government
Obligations for the purchase or sale of goods and services at previously agreed prices
Currency of one country can be exchanged for the currency of another country

36. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Large number of individuals and cos exchange of domestic currencies for a foreign currency
State driven recapitalization are now needed
Investor psychology
A common reference

37. What is the second characteristic of transaction exposure?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Interest rates and money supply
Exchange rate policies
Obligations for the purchase or sale of goods and services at previously agreed prices

38. Marekts are open...
24/7
True
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

39. What is arbitrage?
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
Banks stability was measure at a 5% capital adequacy ratio
Reserve currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

40. Bailout Fund of EFSF - What is this shiz nitz?
Monetary and fiscal policies
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Delay collection of foreign currency receivables if currency is exception to appreciate

41. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
up to date
Forward exchange or spot exchange
Large number of individuals and cos exchange of domestic currencies for a foreign currency

42. Most Transaction inovolve...
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Delay payables if currency is expected to depreciate

43. What are some factors that influence exchange rates?
London - New York - Tokyo - and Singapore
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

44. What are the purposes of fiscal policies?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

45. What is non convertible currency?
Spot rates - forward rates - and swaps
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Exchange rates are determined by the demand and supply for different currencies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

46. What is a spot rate?
Goods and services of one country can be exchanged for the goods and services of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
up to date
Monetary and fiscal policies

47. What are two methods of reducing translation and transaction exposure?
domino effect
up to date
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lead and lag strategies

48. What is the first characteristic of transaction exposure ?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by fluctuation in foreign exchange values
Productivity and balance payments
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

49. What is the fourth thing that determines the forex rates?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Exchange rate policies

50. What is a currency swamp?
Currency of one country can be exchanged for the currency of another country
Exchange rates are determined by the demand and supply for different currencies
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates