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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. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Exchange rate policies
Spot rates and forward rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

2. What is the third characteristic of transaction exposure?
Increase currency values and protect against increases in foreign prices of goods and services
Interest rates and money supply
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Borrowing of funds in foreign currency

3. What is the first roels of the U.S. dollar outside the U.S.?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rates are determined by the demand and supply for different currencies
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
A common reference

4. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Measurement of past events
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

5. What is a currency swamp?
Goods and services of one country can be exchanged for the goods and services of another country
Reserve currency
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

6. 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
Reserve currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
An attempt to collect currency receivables early as result of expected depreciation

7. What are the two ways to reduce economic exposure?
Establish central control and attempts to forecast future exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
1. distribute productive assets 2. ensure assets are not concentrated in countries
Interest rates and money supply

8. What is the real exchange rate?
domino effect
up to date
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Goods and services of one country can be exchanged for the goods and services of another country

9. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Intervention currency (peg country currency)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
True

10. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Exchange rate policies
State driven recapitalization are now needed
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

11. What is the law of one price?
u.s. dollar
It is used to measure how far the nominal exchange rate deviate from the one that would create 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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

12. What are some characteristics of swaps?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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
Lending of funds in foreign currencies
u.s. dollar

13. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Exchange rates are determined by the demand and supply for different currencies
Collecting & spending of money by the government
up to date

14. What are other strategies for managing forex risk?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
State driven recapitalization are now needed

15. What is the characteristic of translation expose?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
agreed upon austerity
Measurement of past events
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

16. 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
Intervention currency (peg country currency)
Lending of funds in foreign currencies
Spot rates - forward rates - and swaps

17. What is capital fight when looking at it form investor psychology?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Large number of individuals and cos exchange of domestic currencies for a foreign currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
domino effect

18. Burger economics!!! Why do we use it?
Affected by fluctuation in foreign exchange values
Intervention currency (peg country currency)
domino effect
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

19. How and What is the purpose of distributing assets?
Establish central control and attempts to forecast future exchange rates
Exchange rate policies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

20. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

21. It is important to stay __________ with your current events
Collecting & spending of money by the government
Firms future international earning power
It helps them understand the influence of exchange rates on profitability of trade investment deals
up to date

22. What are two methods of reducing translation and transaction exposure?
Intervention currency (peg country currency)
Lead and lag strategies
Inflation - interest rate - and market psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

23. What is the fourth thing that determines the forex rates?
An attempt to collect currency receivables early as result of expected depreciation
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Exchange rate policies

24. What is the second issue with EFSF?
State driven recapitalization are now needed
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. 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
Establish central control and attempts to forecast future exchange rates

25. What are the important trading centers?
agreed upon austerity
London - New York - Tokyo - and Singapore
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Spot rates - forward rates - and swaps

26. What is free convertible currency?
Delay payables if currency is expected to depreciate
It helps them understand the influence of exchange rates on profitability of trade investment deals
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

27. How can transaction exposure be described?
The income form individual transacations
Banks stability was measure at a 5% capital adequacy ratio
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Inflation - interest rate - and market psychology

28. What is the fifth thing that determines the forex rates?
Investor psychology
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Reserve currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

29. What is the second thing that determines the Forex rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Interest rates and money supply
Issue mo good loans so that profits from new business can eat away the losses form the bad

30. When do countries use foreign exchange market?
Exchange rates are determined by the demand and supply for different currencies
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
24/7
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

31. What is arbitrage?
Spot rates and forward rates
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
u.s. dollar
up to date

32. What is the nature of the forex market?
24/7
Currency of one country can be exchanged for the currency of another country
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

33. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
up to date
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad

34. Bailout Fund of EFSF - What is this shiz nitz?
Productivity and balance payments
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
agreed upon austerity

35. Defaulting on debt has a __________ that intertwines all countries in Europe.
Currency of one country can be exchanged for the currency of another country
domino effect
Paying foreign currency payable before dues as a result expected currency appreciation
A common reference

36. What causes big mac prices to vary?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
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

37. What is the first characteristic of lead strategy?
True
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
An attempt to collect currency receivables early as result of expected depreciation

38. What is the second characteristic of lag strategy?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
London - New York - Tokyo - and Singapore
Delay payables if currency is expected to depreciate

39. What is the first issue with EFSF?
Relative price differences and ppp
Spot rates and forward rates
Vehicle currency(transaction between 2 less commonly used currencies)
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. 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
Measurement of past events
Exchange rates are determined by the demand and supply for different currencies
Large number of individuals and cos exchange of domestic currencies for a foreign currency

41. What is economic exposure?
Monetary and fiscal policies
Firms future international earning power
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Issue mo good loans so that profits from new business can eat away the losses form the bad

42. What is the fourth roles 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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates - forward rates - and swaps

43. What are three factors that impact a country's future exchange rate movements?
24/7
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
Inflation - interest rate - and market psychology

44. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
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
Goods and services of one country can be exchanged for the goods and services of another country

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

46. What is the second characteristic of lead strategy?
Productivity and balance payments
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
Paying foreign currency payable before dues as a result expected currency appreciation

47. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Currency of one country can be exchanged for the currency of another country
Vehicle currency(transaction between 2 less commonly used currencies)

48. What are the purposes of fiscal policies?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Goods and services of one country can be exchanged for the goods and services of another country
Obligations for the purchase or sale of goods and services at previously agreed prices
Collecting & spending of money by the government

49. How can translation exposure be described?
agreed upon austerity
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Exchange rates are determined by the demand and supply for different currencies
Impact of currency exchange rate changes on reported financial statements

50. 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
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
True