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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.
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. How can transaction exposure be described?
Relative price differences and ppp
Measurement of past events
agreed upon austerity
The income form individual transacations

2. What is the second issue with EFSF?
Spot rates and forward 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
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
Relative price differences and ppp

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

4. What is a currency swamp?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Measurement of past events
Spot rates - forward rates - and swaps
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

5. What is the second thing that determines the Forex rates?
Interest rates and money supply
Monetary and fiscal policies
True
Intervention currency (peg country currency)

6. What is arbitrage?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
1. distribute productive assets 2. ensure assets are not concentrated in countries

7. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Borrowing of funds in foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

8. What is the fifth thing that determines the forex rates?
Investor psychology
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation
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

9. Most Transaction inovolve...
The income form individual transacations
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay collection of foreign currency receivables if currency is exception to appreciate
u.s. dollar

10. 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
True
u.s. dollar
Investor psychology

11. 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
Spot rates and forward rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages

12. How do you insure or hedge against a Forex risk?
Transaction - translation and economic exposure
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Forward exchange or spot exchange
u.s. dollar

13. What is the second characteristic of lag strategy?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Investor psychology
Measurement of past events
Delay payables if currency is expected to depreciate

14. What holds true to Purchase Power Parity Theory?
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
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
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

15. How do you establish central control?
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
State driven recapitalization are now needed

16. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
An attempt to collect currency receivables early as result of expected depreciation
agreed upon austerity
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages

17. What are the types of Exchange Rate Fluctuations?
Group of investors movement in the same direction and same time or government intervention
Monetary and fiscal policies
agreed upon austerity
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

18. What are the three different types of foreign exchange rate risks?
London - New York - Tokyo - and Singapore
True
Transaction - translation and economic exposure
Delay payables if currency is expected to depreciate

19. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Intervention currency (peg country currency)
Group of investors movement in the same direction and same time or government intervention
Borrowing of funds in foreign currency

20. 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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
State driven recapitalization are now needed
Firms future international earning power

21. What are the two ways to reduce economic exposure?
An attempt to collect currency receivables early as result of expected depreciation
Lending of funds in foreign currencies
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
1. distribute productive assets 2. ensure assets are not concentrated in countries

22. What causes big mac prices to vary?
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Increase their exposure to banking -'s banking center

23. What is the third thing that determines the forex rates?
Investor psychology
Intervention currency (peg country currency)
Obligations for the purchase or sale of goods and services at previously agreed prices
Productivity and balance payments

24. What are other strategies for managing forex risk?
Group of investors movement in the same direction and same time or government intervention
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Interest rates and money supply
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

25. Marekts are open...
True
True
24/7
Delay payables if currency is expected to depreciate

26. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Paying foreign currency payable before dues as a result expected currency appreciation
Affected by fluctuation in foreign exchange values

27. Defaulting on debt has a __________ that intertwines all countries in Europe.
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Firms future international earning power
domino effect

28. How can translation exposure be described?
Impact of currency exchange rate changes on reported financial statements
Reserve currency
Forward exchange or spot exchange
1. distribute productive assets 2. ensure assets are not concentrated in countries

29. What is capital fight when looking at it form investor psychology?
Monetary and fiscal policies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Transaction - translation and economic exposure
Delay payables if currency is expected to depreciate

30. 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
Exchange rates are determined by the demand and supply for different currencies
Affected by fluctuation in foreign exchange values

31. The euro faces risks fo recapitalization?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Banks stability was measure at a 5% capital adequacy ratio

32. Burger economics!!! Why do we use it?
Goods and services of one country can be exchanged for the goods and services of another country
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True

33. What is economic exposure?
Firms future international earning power
Productivity and balance payments
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

34. What are the two ways to quote currency?
up to date
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Spot rates and forward rates

35. What are the characteristics of economic exposure?
Relative price differences and ppp
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
True

36. What is the fourth characteristic of transaction exposure?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Lending of funds in foreign currencies
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar

37. What are three factors that impact a country's future exchange rate movements?
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Inflation - interest rate - and market psychology
The income form individual transacations

38. What is the second characteristic of transaction exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Obligations for the purchase or sale of goods and services at previously agreed prices
The income form individual transacations
Measurement of past events

39. What is the purpose of not concentrating assets 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
An attempt to collect currency receivables early as result of expected depreciation
Collecting & spending of money by the government
Increase currency values and protect against increases in foreign prices of goods and services

40. What is the nominal exchange rate?
Increase their exposure to banking -'s banking center
Affected by fluctuation in foreign exchange values
Currency of one country can be exchanged for the currency of another country
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

41. What is the characteristic of translation expose?
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
Relative price differences and ppp
Measurement of past events
Lead and lag strategies

42. What is the first characteristic of transaction 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
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
Vehicle currency(transaction between 2 less commonly used currencies)

43. What is the third characteristic of transaction exposure?
Spot rates - forward rates - and swaps
Lead and lag strategies
Borrowing of funds in 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

44. What are the important trading centers?
Relative price differences and ppp
up to date
London - New York - Tokyo - and Singapore
Forward exchange or spot exchange

45. What is the first characteristic of lag strategy?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Impact of currency exchange rate changes on reported financial statements
Exchange rate policies
Delay collection of foreign currency receivables if currency is exception to appreciate

46. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
True
Obligations for the purchase or sale of goods and services at previously agreed prices
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

47. What are some factors that influence exchange rates?
Spot rates - forward rates - and swaps
Collecting & spending of money by the government
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

48. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
up to date
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Group of investors movement in the same direction and same time or government intervention

49. What is the law of one price?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

50. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
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
Group of investors movement in the same direction and same time or government intervention