Test your basic knowledge |

Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

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 two ways to quote currency?
Spot rates and forward rates
The income form individual transacations
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Interest rates and money supply

2. What is the second role of the U.S. dollar outside the U.S. ?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Intervention currency (peg country currency)

3. What is economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Vehicle currency(transaction between 2 less commonly used currencies)
Increase currency values and protect against increases in foreign prices of goods and services
Firms future international earning power

4. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rate policies
Vehicle currency(transaction between 2 less commonly used currencies)
Lending of funds in foreign currencies

5. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The income form individual transacations
Monetary and fiscal policies
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

6. What is non convertible currency?
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
Investor psychology
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

7. What are the purposes of fiscal policies?
Collecting & spending of money by the government
Control the amount of money in circulation - enforced by government policies - focus on growth rate
domino effect
Spot rates and forward rates

8. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
Collecting & spending of money by the government

9. What do monetary policies do?
Banks stability was measure at a 5% capital adequacy ratio
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

10. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Obligations for the purchase or sale of goods and services at previously agreed prices
Firms future international earning power
domino effect

11. What is the law of one price?
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
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
Lead and lag strategies

12. It is important to stay __________ with your current events
up to date
Paying foreign currency payable before dues as a result expected currency appreciation
Inflation - interest rate - and market psychology
Lending of funds in foreign currencies

13. When do countries use the foreign exchange market?
Collecting & spending of money by the government
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
Interest rates and money supply

14. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Investor psychology
An attempt to collect currency receivables early as result of expected depreciation
Exchange rates are determined by the demand and supply for different currencies

15. What is the second issue with EFSF?
It helps them understand the influence of exchange rates on profitability of trade investment deals
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. 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

16. Marekts are open...
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
agreed upon austerity
24/7
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

17. What are the important trading centers?
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
Productivity and balance payments
An attempt to collect currency receivables early as result of expected depreciation
London - New York - Tokyo - and Singapore

18. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Exchange rates are determined by the demand and supply for different currencies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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

19. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
State driven recapitalization are now needed
Large number of individuals and cos exchange of domestic currencies for a foreign 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

20. What is externally convertible currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Productivity and balance payments
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

21. What is the first roels of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
A common reference
Lead and lag strategies

22. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Delay payables if currency is expected to depreciate
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Vehicle currency(transaction between 2 less commonly used currencies)

23. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Firms future international earning power
Reserve currency

24. What is the real exchange rate?
domino effect
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. 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
Goods and services of one country can be exchanged for the goods and services of another country

25. According to economic theories of exchage rate determination?
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
Spot rates - forward rates - and swaps
Exchange rates are determined by the demand and supply for different currencies

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

27. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
An attempt to collect currency receivables early as result of expected depreciation

28. What is capital fight when looking at it form investor psychology?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

29. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
State driven recapitalization are now needed
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
Lead and lag strategies
An attempt to collect currency receivables early as result of expected depreciation

30. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
It helps them understand the influence of exchange rates on profitability of trade investment deals
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

31. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rates are determined by the demand and supply for different currencies

32. What is free convertible currency?
up to date
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference

33. What is the third thing that determines the forex rates?
Exchange rate policies
Productivity and balance payments
Obligations for the purchase or sale of goods and services at previously agreed prices
agreed upon austerity

34. What is the second characteristic of transaction exposure?
State driven recapitalization are now needed
An attempt to collect currency receivables early as result of expected depreciation
Transaction - translation and economic exposure
Obligations for the purchase or sale of goods and services at previously agreed prices

35. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
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
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar

36. What are the types of Exchange Rate Fluctuations?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Goods and services of one country can be exchanged for the goods and services of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Monetary and fiscal policies

37. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
Affected by fluctuation in foreign exchange values
London - New York - Tokyo - and Singapore
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

38. What is the fourth characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Lending of funds in foreign currencies

39. What is hedging?

40. What is a spot rate?
Reserve currency
Currency of one country can be exchanged for the currency of another country
Inflation - interest rate - and market psychology
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

41. What is the fifth thing that determines the forex rates?
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
Investor psychology
Affected by fluctuation in foreign exchange values
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

42. What are the first two things that determine Forex rates?
Exchange rate policies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Investor psychology
Relative price differences and ppp

43. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Vehicle currency(transaction between 2 less commonly used currencies)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Group of investors movement in the same direction and same time or government intervention

44. What are the characteristics of economic exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Firms future international earning power
Delay collection of foreign currency receivables if currency is exception to appreciate

45. What is the first issue with EFSF?
Lead and lag strategies
Productivity and balance payments
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

46. How do you insure or hedge against a Forex risk?
Affected by fluctuation in foreign exchange values
Delay collection of foreign currency receivables if currency is exception to appreciate
Forward exchange or spot exchange
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

47. What is the second thing that determines the Forex rates?
Interest rates and money supply
Delay collection of foreign currency receivables if currency is exception to appreciate
agreed upon austerity
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

48. What is the third role of the U.S. dollar outside the U.S.?
Establish central control and attempts to forecast future exchange rates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
An attempt to collect currency receivables early as result of expected depreciation
Reserve currency

49. No single theory can explain explain the causes the value of currencies to change. True or False?
True
Spot rates and forward rates
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 nature of the forex market?
Monetary and fiscal policies
Inflation - interest rate - and market psychology
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
Establish central control and attempts to forecast future exchange rates