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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. How do you insure or hedge against a Forex risk?
Increase their exposure to banking -'s banking center
Forward exchange or spot exchange
Monetary and fiscal policies
Impact of currency exchange rate changes on reported financial statements

2. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Banks stability was measure at a 5% capital adequacy ratio
Paying foreign currency payable before dues as a result expected currency appreciation
True

3. Burger economics!!! Why do we use it?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Exchange rates are determined by the demand and supply for different currencies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Borrowing of funds in foreign currency

4. What is the fourth characteristic of transaction exposure?
Delay collection of foreign currency receivables if currency is exception to appreciate
Increase currency values and protect against increases in foreign prices of goods and services
Lending of funds in foreign currencies
Reserve currency

5. What are some characteristics of swaps?
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
Spot rates and forward rates
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
Investor psychology

6. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
agreed upon austerity
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

7. What is the real exchange rate?
London - New York - Tokyo - and Singapore
Goods and services of one country can be exchanged for the goods and services of another country
Banks stability was measure at a 5% capital adequacy ratio
Intervention currency (peg country currency)

8. What is the third thing that determines the forex rates?
Transaction - translation and economic exposure
True
Productivity and balance payments
Spot rates and forward rates

9. What is the bandwagon effect when looking at form investor psychology ?
Impact of currency exchange rate changes on reported financial statements
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention

10. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Measurement of past events
True
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

11. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
True
Intervention currency (peg country currency)

12. What is hedging?

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13. What is a forward rate?
up to date
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lead and lag strategies
The income form individual transacations

14. No single theory can explain explain the causes the value of currencies to change. True or False?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Intervention currency (peg country currency)
True
Collecting & spending of money by the government

15. What is the first characteristic of lag strategy?
Interest rates and money supply
Control the amount of money in circulation - enforced by government policies - focus on growth rate
domino effect
Delay collection of foreign currency receivables if currency is exception to appreciate

16. What is the fifth thing that determines the forex rates?
Inflation - interest rate - and market psychology
Vehicle currency(transaction between 2 less commonly used currencies)
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Investor psychology

17. What is arbitrage?
Investor psychology
London - New York - Tokyo - and Singapore
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Inflation - interest rate - and market psychology

18. 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
Measurement of past events
Lead and lag strategies
Vehicle currency(transaction between 2 less commonly used currencies)

19. What is the second role of the U.S. dollar outside the U.S. ?
u.s. dollar
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
London - New York - Tokyo - and Singapore
Intervention currency (peg country currency)

20. What is the nature of the forex market?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

21. What are the characteristics of economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

22. 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
Forward exchange or spot exchange
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

23. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
24/7
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Firms future international earning power

24. What are the three ways of insuring against a Forex risk?
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
Spot rates - forward rates - and swaps
Monetary and fiscal policies

25. How can translation exposure be described?
Interest rates and money supply
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
Impact of currency exchange rate changes on reported financial statements

26. What is the second characteristic of lead strategy?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference

27. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

28. What is the law of one price?
Spot rates - forward rates - and swaps
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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
Reserve currency

29. Marekts are open...
Exchange rate policies
Lead and lag strategies
Collecting & spending of money by the government
24/7

30. 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
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
Investor psychology

31. What are the important trading centers?
London - New York - Tokyo - and Singapore
Increase their exposure to banking -'s banking center
24/7
Delay payables if currency is expected to depreciate

32. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Relative price differences and ppp

33. What implications does understanding foreign exchange rates have on managers?
Currency of one country can be exchanged for the currency of another country
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
Lead and lag strategies
It helps them understand the influence of exchange rates on profitability of trade investment deals

34. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Monetary and fiscal policies
The income form individual transacations
Issue mo good loans so that profits from new business can eat away the losses form the bad
Group of investors movement in the same direction and same time or government intervention

35. What are some strategies for managing forex risk?
True
domino effect
Impact of currency exchange rate changes on reported financial statements
Establish central control and attempts to forecast future exchange rates

36. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
up to date
1. distribute productive assets 2. ensure assets are not concentrated in countries

37. What are the purposes of fiscal policies?
Collecting & spending of money by the government
True
Borrowing of funds in foreign currency
Relative price differences and ppp

38. What is a spot rate?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True
Spot rates - forward rates - and swaps
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

39. What are the types of Exchange Rate Fluctuations?
Delay payables if currency is expected to depreciate
Monetary and fiscal policies
True
24/7

40. What is the third characteristic of transaction exposure?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Monetary and fiscal policies
24/7
Borrowing of funds in foreign currency

41. 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
A common reference
It helps them understand the influence of exchange rates on profitability of trade investment deals
Lending of funds in foreign currencies

42. The euro faces risks fo recapitalization?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
Large number of individuals and cos exchange of domestic currencies for a foreign currency

43. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
Spot rates and forward rates

44. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Borrowing of funds in foreign currency
True
Obligations for the purchase or sale of goods and services at previously agreed prices
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

45. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Productivity and balance payments
A common reference
Issue mo good loans so that profits from new business can eat away the losses form the bad
State driven recapitalization are now needed

46. What is non convertible currency?
Exchange rate policies
Increase their exposure to banking -'s banking center
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Spot rates - forward rates - and swaps

47. What is free convertible currency?
Goods and services of one country can be exchanged for the goods and services of another country
Vehicle currency(transaction between 2 less commonly used currencies)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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

48. What are the three different types of foreign exchange rate risks?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
Transaction - translation and economic exposure
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

49. Most Transaction inovolve...
Inflation - interest rate - and market psychology
u.s. dollar
Large number of individuals and cos exchange of domestic currencies for a foreign 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

50. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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 collection of foreign currency receivables if currency is exception to appreciate