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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 three ways of insuring against a Forex risk?
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates - forward rates - and swaps
Impact of currency exchange rate changes on reported financial statements
London - New York - Tokyo - and Singapore

2. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
True
Goods and services of one country can be exchanged for the goods and services of another country
Lending of funds in foreign currencies

3. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
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

4. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. distribute productive assets 2. ensure assets are not concentrated in countries
A common reference

5. What is the third thing that determines the forex rates?
Reserve currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Productivity and balance payments
Transportation costs - trade barriers - and not trade inputs such as rents or wages

6. What causes big mac prices to vary?
Firms future international earning power
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Inflation - interest rate - and market psychology
Monetary and fiscal policies

7. Greece has not defaulted because it has not been able to fully implement its...
Delay payables if currency is expected to depreciate
agreed upon austerity
Issue mo good loans so that profits from new business can eat away the losses form the bad
Transaction - translation and economic exposure

8. How and What is the purpose of distributing assets?
Increase their exposure to banking -'s banking center
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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

9. What is the second characteristic of transaction exposure?
Collecting & spending of money by the government
Obligations for the purchase or sale of goods and services at previously agreed prices
A common reference
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

10. When do countries use the foreign exchange market?
True
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)
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

11. What is free convertible currency?
Inflation - interest rate - and market psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Relative price differences and ppp
Issue mo good loans so that profits from new business can eat away the losses form the bad

12. What is the bandwagon effect when looking at form investor psychology ?
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Group of investors movement in the same direction and same time or government intervention
Increase their exposure to banking -'s banking center

13. What is the law of one price?
Productivity and balance payments
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
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates

14. What are the two ways to quote currency?
Spot rates and forward rates
Measurement of past events
Transaction - translation and economic exposure
Intervention currency (peg country currency)

15. What are some characteristics of swaps?
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
Group of investors movement in the same direction and same time or government intervention
Firms future international earning power
It helps them understand the influence of exchange rates on profitability of trade investment deals

16. What are the important trading centers?
An attempt to collect currency receivables early as result of expected depreciation
Firms future international earning power
London - New York - Tokyo - and Singapore
agreed upon austerity

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

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18. What are three factors that impact a country's future exchange rate movements?
Reserve currency
Measurement of past events
Monetary and fiscal policies
Inflation - interest rate - and market psychology

19. How can transaction exposure be described?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The income form individual transacations
Firms future international earning power
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

20. Most Transaction inovolve...
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
u.s. dollar
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Increase currency values and protect against increases in foreign prices of goods and services

21. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Control the amount of money in circulation - enforced by government policies - focus on growth rate
The income form individual transacations
Relative price differences and ppp

22. What implications does understanding foreign exchange rates have on managers?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

23. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
The income form individual transacations
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

24. What is the second characteristic of lead strategy?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Paying foreign currency payable before dues as a result expected currency appreciation
Delay payables if currency is expected to depreciate
up to date

25. What are some factors that influence exchange rates?
Increase currency values and protect against increases in foreign prices of goods and services
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Reserve currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

26. 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
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
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

27. 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
Measurement of past events
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Obligations for the purchase or sale of goods and services at previously agreed prices

28. No single theory can explain explain the causes the value of currencies to change. True or False?
domino effect
Delay collection of foreign currency receivables if currency is exception to appreciate
True
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

29. 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
Lending of funds in foreign currencies
Reserve currency
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

30. What holds true to Purchase Power Parity Theory?
State driven recapitalization are now needed
up to date
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
Relative price differences and ppp

31. What is hedging?

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32. What is the purpose of not concentrating assets in countries?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Increase currency values and protect against increases in foreign prices of goods and services
Exchange rate policies
The income form individual transacations

33. What is the second thing that determines the Forex rates?
Interest rates and money supply
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
London - New York - Tokyo - and Singapore

34. What are some strategies for managing forex risk?
Currency of one country can be exchanged for the currency of another country
Lead and lag strategies
Establish central control and attempts to forecast future exchange rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

35. The euro faces risks fo recapitalization?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
True
Banks stability was measure at a 5% capital adequacy ratio
Interest rates and money supply

36. How do you establish central control?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

37. Marekts are open...
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
Transaction - translation and economic exposure
Borrowing of funds in foreign currency
24/7

38. It is important to stay __________ with your current events
Delay collection of foreign currency receivables if currency is exception to appreciate
Currency of one country can be exchanged for the currency of another country
up to date
domino effect

39. What is the fifth thing that determines the forex rates?
Investor psychology
24/7
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Paying foreign currency payable before dues as a result expected currency appreciation

40. Bailout Fund of EFSF - What is this shiz nitz?
Goods and services of one country can be exchanged for the goods and services of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Inflation - interest rate - and market psychology
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

41. According to economic theories of exchage rate determination?
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
Exchange rates are determined by the demand and supply for different currencies
Borrowing of funds in foreign currency
An attempt to collect currency receivables early as result of expected depreciation

42. What are the types of Exchange Rate Fluctuations?
A common reference
Paying foreign currency payable before dues as a result expected currency appreciation
London - New York - Tokyo - and Singapore
Monetary and fiscal policies

43. What is the characteristic of translation expose?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Measurement of past events
Transaction - translation and economic exposure
Reserve currency

44. What are two methods of reducing translation and transaction exposure?
Affected by fluctuation in foreign exchange values
Lead and lag strategies
Monetary and fiscal policies
State driven recapitalization are now needed

45. 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
Obligations for the purchase or sale of goods and services at previously agreed prices
domino effect
Productivity and balance payments

46. 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
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
Monetary and fiscal policies
domino effect

47. What is the real exchange rate?
Productivity and balance payments
24/7
Goods and services of one country can be exchanged for the goods and services of another country
Establish central control and attempts to forecast future exchange rates

48. What is arbitrage?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Increase their exposure to banking -'s banking center

49. What are the characteristics of economic exposure?
Spot rates and forward rates
Measurement of past events
Spot rates - forward rates - and swaps
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

50. What is the first issue with EFSF?
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
Paying foreign currency payable before dues as a result expected currency appreciation
An attempt to collect currency receivables early as result of expected depreciation
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