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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. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
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
Productivity and balance payments

2. According to economic theories of exchage rate determination?
Investor psychology
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

3. 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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True

4. What is the second characteristic of lag strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay payables if currency is expected to depreciate

5. What is the first issue with EFSF?
up to date
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Investor psychology
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

6. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Lead and lag strategies
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

7. What are some strategies for managing forex risk?
The income form individual transacations
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments
Establish central control and attempts to forecast future exchange rates

8. How can translation exposure be described?
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
Impact of currency exchange rate changes on reported financial statements
Currency of one country can be exchanged for the currency of another country
Goods and services of one country can be exchanged for the goods and services of another country

9. What is the law of one price?
A common reference
True
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

10. What is the first characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
An attempt to collect currency receivables early as result of expected depreciation
It helps them understand the influence of exchange rates on profitability of trade investment deals
Collecting & spending of money by the government

11. What are other strategies for managing forex risk?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Impact of currency exchange rate changes on reported financial statements
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

12. What is arbitrage?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

13. Most Transaction inovolve...
u.s. dollar
Firms future international earning power
It helps them understand the influence of exchange rates on profitability of trade investment deals
Obligations for the purchase or sale of goods and services at previously agreed prices

14. What is the fourth roles of the U.S. dollar outside the U.S.?
The income form individual transacations
Vehicle currency(transaction between 2 less commonly used currencies)
An attempt to collect currency receivables early as result of expected depreciation
Establish central control and attempts to forecast future exchange rates

15. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Collecting & spending of money by the government
Vehicle currency(transaction between 2 less commonly used currencies)
Delay collection of foreign currency receivables if currency is exception to appreciate

16. What are the important trading centers?
Paying foreign currency payable before dues as a result expected currency appreciation
Relative price differences and ppp
London - New York - Tokyo - and Singapore
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

17. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Large number of individuals and cos exchange of domestic currencies for a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Transportation costs - trade barriers - and not trade inputs such as rents or wages
State driven recapitalization are now needed

18. What is the fifth thing that determines the forex rates?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
1. distribute productive assets 2. ensure assets are not concentrated in countries
Goods and services of one country can be exchanged for the goods and services of another country

19. What are the characteristics of economic exposure?
Impact of currency exchange rate changes on reported financial statements
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Relative price differences and ppp

20. What is the first roels of the U.S. dollar outside the U.S.?
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
Lead and lag strategies
A common reference

21. What is the third thing that determines the forex rates?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Productivity and balance payments
Firms future international earning power
Delay collection of foreign currency receivables if currency is exception to appreciate

22. What is the real exchange rate?
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
Increase currency values and protect against increases in foreign prices of goods and services
Banks stability was measure at a 5% capital adequacy ratio

23. What is the third characteristic of transaction exposure?
Exchange rates are determined by the demand and supply for different currencies
Borrowing of funds in foreign currency
Productivity and balance payments
Reserve currency

24. What is the second characteristic of lead strategy?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Paying foreign currency payable before dues as a result expected currency appreciation
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

25. What is hedging?

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26. What are two methods of reducing translation and transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Impact of currency exchange rate changes on reported financial statements
Exchange rate policies
Lead and lag strategies

27. No single theory can explain explain the causes the value of currencies to change. True or False?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a 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.
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
True

28. What is non convertible currency?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
True
Currency of one country can be exchanged for the currency of another country
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

29. What implications does understanding foreign exchange rates have on managers?
Delay payables if currency is expected to depreciate
Spot rates and forward rates
It helps them understand the influence of exchange rates on profitability of trade investment deals
Investor psychology

30. What is the first characteristic of lag strategy?
Banks stability was measure at a 5% capital adequacy ratio
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
Delay collection of foreign currency receivables if currency is exception to appreciate
It helps them understand the influence of exchange rates on profitability of trade investment deals

31. What is a spot rate?
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Issue mo good loans so that profits from new business can eat away the losses form the bad
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

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

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

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34. What are the three different types of foreign exchange rate risks?
Transaction - translation and economic exposure
Impact of currency exchange rate changes on reported financial statements
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
domino effect

35. What is the nature of the forex market?
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. protect resources efficiently 2. ensure correct mix of tactics and strategies
Firms future international earning power
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

36. Marekts are open...
Goods and services of one country can be exchanged for the goods and services of another country
Borrowing of funds in foreign currency
Obligations for the purchase or sale of goods and services at previously agreed prices
24/7

37. What are three factors that impact a country's future exchange rate movements?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
State driven recapitalization are now needed
Inflation - interest rate - and market psychology
Relative price differences and ppp

38. What are the types of Exchange Rate Fluctuations?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Monetary and fiscal policies
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

39. 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
Issue mo good loans so that profits from new business can eat away the losses form the bad
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
24/7

40. What are the first two things that determine Forex rates?
Lead and lag strategies
domino effect
Relative price differences and ppp
Inflation - interest rate - and market psychology

41. What is a forward rate?
The income form individual transacations
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Measurement of past events

42. What is the nominal exchange rate?
Intervention currency (peg country currency)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Currency of one country can be exchanged for the currency of another country
Collecting & spending of money by the government

43. What is the first characteristic of transaction exposure ?
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates and forward rates
Affected by fluctuation in foreign exchange values
Productivity and balance payments

44. What is the second thing that determines the Forex rates?
Delay payables if currency is expected to depreciate
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
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

45. What is the second characteristic of transaction exposure?
Reserve currency
Vehicle currency(transaction between 2 less commonly used currencies)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Obligations for the purchase or sale of goods and services at previously agreed prices

46. What is the fourth thing that determines the forex rates?
Exchange rate policies
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Reserve currency

47. What are the three ways of insuring against a Forex risk?
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
Spot rates - forward rates - and swaps

48. When do countries use foreign exchange market?
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
Relative price differences and ppp
Firms future international earning power
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

49. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
True
Issue mo good loans so that profits from new business can eat away the losses form the bad
u.s. dollar
Banks stability was measure at a 5% capital adequacy ratio

50. 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
Paying foreign currency payable before dues as a result expected currency appreciation
Relative price differences and ppp
Group of investors movement in the same direction and same time or government intervention