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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 is the first issue with EFSF?
Inflation - interest rate - and market psychology
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

2. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Goods and services of one country can be exchanged for the goods and services of another country

3. Marekts are open...
Firms future international earning power
24/7
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

4. What implications does understanding foreign exchange rates have on managers?
Paying foreign currency payable before dues as a result expected currency appreciation
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.
Establish central control and attempts to forecast future exchange rates

5. What is capital fight when looking at it form investor psychology?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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

6. What is the nominal exchange rate?
The income form individual transacations
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Currency of one country can be exchanged for the currency of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

7. No single theory can explain explain the causes the value of currencies to change. True or False?
domino effect
Firms future international earning power
True
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

8. What is non convertible currency?
Monetary and fiscal policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
True
An attempt to collect currency receivables early as result of expected depreciation

9. What are some characteristics of swaps?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

10. What is the bandwagon effect when looking at form investor psychology ?
Lending of funds in foreign currencies
Delay collection of foreign currency receivables if currency is exception to appreciate
Group of investors movement in the same direction and same time or government intervention
Relative price differences and ppp

11. What are the three different types of foreign exchange rate risks?
The income form individual transacations
Monetary and fiscal policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Transaction - translation and economic exposure

12. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
agreed upon austerity
A common reference
Collecting & spending of money by the government

13. What is the fourth characteristic of transaction exposure?
Interest rates and money supply
A common reference
Lending of funds in foreign currencies
Intervention currency (peg country currency)

14. What is a currency swamp?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
An attempt to collect currency receivables early as result of expected depreciation
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Inflation - interest rate - and market psychology

15. When do countries use the foreign exchange market?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Banks stability was measure at a 5% capital adequacy ratio
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)

16. What are the two ways to quote currency?
Spot rates and forward rates
Increase their exposure to banking -'s banking center
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
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

17. What is the second 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
Interest rates and money supply
Establish central control and attempts to forecast future exchange rates
Monetary and fiscal policies

18. What are some factors that influence exchange rates?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
24/7
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
domino effect

19. What are the purposes of fiscal policies?
Borrowing of funds in foreign currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Collecting & spending of money by the government

20. What is hedging?

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21. What is the characteristic of translation expose?
Currency of one country can be exchanged for the currency of another country
Measurement of past events
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

22. What are the important trading centers?
Spot rates and forward rates
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
24/7

23. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Intervention currency (peg country currency)
State driven recapitalization are now needed
Firms future international earning power
Transportation costs - trade barriers - and not trade inputs such as rents or wages

24. What are the characteristics of economic exposure?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Interest rates and money supply
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

25. What is externally convertible currency
Transaction - translation and economic exposure
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
Increase their exposure to banking -'s banking center

26. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
An attempt to collect currency receivables early as result of expected depreciation
A common reference
Relative price differences and ppp

27. Bailout Fund of EFSF - What is this shiz nitz?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
up to date
The income form individual transacations
Paying foreign currency payable before dues as a result expected currency appreciation

28. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals
True

29. What is a forward rate?
An attempt to collect currency receivables early as result of expected depreciation
Group of investors movement in the same direction and same time or government intervention
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

30. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

31. What is the second characteristic of lag strategy?
Delay payables if currency is expected to depreciate
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
Impact of currency exchange rate changes on reported financial statements
Exchange rate policies

32. What are the first two things that determine Forex rates?
Relative price differences and ppp
Lending of funds in foreign currencies
Interest rates and money supply
An attempt to collect currency receivables early as result of expected depreciation

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

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34. How can transaction exposure be described?
Interest rates and money supply
Banks stability was measure at a 5% capital adequacy ratio
Monetary and fiscal policies
The income form individual transacations

35. What are other strategies for managing forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Exchange rate policies
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

36. What holds true to Purchase Power Parity Theory?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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. 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
1. distribute productive assets 2. ensure assets are not concentrated in countries

37. What is the third role of the U.S. dollar outside the U.S.?
1. distribute productive assets 2. ensure assets are not concentrated in countries
The income form individual transacations
Paying foreign currency payable before dues as a result expected currency appreciation
Reserve currency

38. What is the fourth thing that determines the forex rates?
Exchange rate policies
Vehicle currency(transaction between 2 less commonly used currencies)
The income form individual transacations
Lead and lag strategies

39. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Exchange rate policies
Transaction - translation and economic exposure

40. What is the fourth roles of the U.S. dollar outside the U.S.?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rates are determined by the demand and supply for different currencies
A common reference
Vehicle currency(transaction between 2 less commonly used currencies)

41. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Paying foreign currency payable before dues as a result expected currency appreciation
Monetary and fiscal policies
Intervention currency (peg country currency)

42. 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
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
Increase their exposure to banking -'s banking center

43. What is arbitrage?
Increase their exposure to banking -'s banking center
Measurement of past events
Forward exchange or spot exchange
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

44. How do you insure or hedge against a Forex risk?
Reserve currency
Relative price differences and ppp
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
Forward exchange or spot exchange

45. How and What is the purpose of distributing assets?
Exchange rate policies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange 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

46. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
Issue mo good loans so that profits from new business can eat away the losses form the bad
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Monetary and fiscal policies

47. What is the third thing that determines the forex rates?
Productivity and balance payments
Issue mo good loans so that profits from new business can eat away the losses form the bad
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
up to date

48. What is economic exposure?
Increase their exposure to banking -'s banking center
Relative price differences and ppp
up to date
Firms future international earning power

49. What is the law of one price?
Impact of currency exchange rate changes on reported financial statements
Spot rates - forward rates - and swaps
Forward exchange or spot exchange
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

50. What is the second role of the U.S. dollar outside the U.S. ?
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
Intervention currency (peg country currency)