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

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2. Burger economics!!! Why do we use it?
A common reference
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

3. How do you establish central control?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Monetary and fiscal policies
True

4. What is the second issue with EFSF?
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. 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. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. distribute productive assets 2. ensure assets are not concentrated in countries

5. What are the three ways of insuring against a Forex risk?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
Productivity and balance payments
Inflation - interest rate - and market psychology

6. What is the real exchange rate?
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.
up to date
Goods and services of one country can be exchanged for the goods and services of another country

7. What is the second characteristic of lead strategy?
Exchange rate policies
True
Paying foreign currency payable before dues as a result expected currency appreciation
Impact of currency exchange rate changes on reported financial statements

8. What is the third role of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
Reserve currency
Establish central control and attempts to forecast future exchange rates
up to date

9. What is the bandwagon effect when looking at form investor psychology ?
Spot rates and forward rates
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Group of investors movement in the same direction and same time or government intervention
Currency of one country can be exchanged for the currency of another country

10. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Measurement of past events
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

11. How can transaction exposure be described?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages

12. It is important to stay __________ with your current events
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
Impact of currency exchange rate changes on reported financial statements
Large number of individuals and cos exchange of domestic currencies for a foreign currency
up to date

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

14. When do countries use foreign exchange market?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

15. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Issue mo good loans so that profits from new business can eat away the losses form the bad
An attempt to collect currency receivables early as result of expected depreciation
Vehicle currency(transaction between 2 less commonly used currencies)

16. What is the first characteristic of lag strategy?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Delay collection of foreign currency receivables if currency is exception to appreciate
up to date

17. 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
Paying foreign currency payable before dues as a result expected currency appreciation
Reserve currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

18. What are the important trading centers?
Transaction - translation and economic exposure
Large number of individuals and cos exchange of domestic currencies for a foreign currency
London - New York - Tokyo - and Singapore
Spot rates - forward rates - and swaps

19. What is arbitrage?
up to date
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Collecting & spending of money by the government
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

20. What is the fourth roles of the U.S. dollar outside the U.S.?
Measurement of past events
State driven recapitalization are now needed
It helps them understand the influence of exchange rates on profitability of trade investment deals
Vehicle currency(transaction between 2 less commonly used currencies)

21. What are the characteristics of economic exposure?
Transaction - translation and economic exposure
Forward exchange or spot exchange
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Exchange rate policies

22. What is the fifth thing that determines the forex rates?
Inflation - interest rate - and market psychology
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
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Investor psychology

23. What is the second characteristic of transaction exposure?
Forward exchange or spot exchange
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
Goods and services of one country can be exchanged for the goods and services of another country

24. How do you insure or hedge against a Forex risk?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Forward exchange or spot exchange
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

25. The euro faces risks fo recapitalization?
Goods and services of one country can be exchanged for the goods and services of another country
Investor psychology
agreed upon austerity
Banks stability was measure at a 5% capital adequacy ratio

26. 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
True
Banks stability was measure at a 5% capital adequacy ratio
Impact of currency exchange rate changes on reported financial statements

27. What causes big mac prices to vary?
Delay collection of foreign currency receivables if currency is exception to appreciate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Borrowing of funds in foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages

28. What is the first characteristic of lead strategy?
Group of investors movement in the same direction and same time or government intervention
Spot rates and forward rates
Banks stability was measure at a 5% capital adequacy ratio
An attempt to collect currency receivables early as result of expected depreciation

29. What is the second role of the U.S. dollar outside the U.S. ?
Interest rates and money supply
Intervention currency (peg country currency)
Measurement of past events
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

30. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Vehicle currency(transaction between 2 less commonly used currencies)
True
True

31. What is the fourth characteristic of transaction exposure?
Spot rates and forward rates
Collecting & spending of money by the government
Lending of funds in foreign currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

32. What is free convertible currency?
Spot rates and forward rates
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
Monetary and fiscal policies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

33. What do monetary policies do?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Borrowing of funds in foreign currency

34. What is externally convertible currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lead and lag strategies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

35. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

36. What is the characteristic of translation expose?
Measurement of past events
Delay payables if currency is expected to depreciate
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

37. Bailout Fund of EFSF - What is this shiz nitz?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates - forward rates - and swaps
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

38. How and What is the purpose of distributing assets?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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

39. 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
Delay payables if currency is expected to depreciate
agreed upon austerity
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

40. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Forward exchange or spot exchange
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate
Firms future international earning power

41. What is non convertible currency?
Impact of currency exchange rate changes on reported financial statements
The income form individual transacations
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

42. Most Transaction inovolve...
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
Banks stability was measure at a 5% capital adequacy ratio
u.s. dollar

43. Greece has not defaulted because it has not been able to fully implement its...
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
Banks stability was measure at a 5% capital adequacy ratio
agreed upon austerity
Control the amount of money in circulation - enforced by government policies - focus on growth rate

44. What are the first two things that determine Forex rates?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Currency of one country can be exchanged for the currency of another country
Relative price differences and ppp
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

45. Marekts are open...
An attempt to collect currency receivables early as result of expected depreciation
24/7
Delay collection of foreign currency receivables if currency is exception to appreciate
Productivity and balance payments

46. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lending of funds in foreign currencies
Measurement of past events

47. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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

48. What are the three different types of foreign exchange rate risks?
agreed upon austerity
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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
Transaction - translation and economic exposure

49. What is the first roels of the U.S. dollar outside the U.S.?
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
A common reference
Increase their exposure to banking -'s banking center

50. What are the two ways to quote currency?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Exchange rate policies
Spot rates and forward rates
Delay collection of foreign currency receivables if currency is exception to appreciate