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Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
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 first roels of the U.S. dollar outside the U.S.?
24/7
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates - forward rates - and swaps
A common reference

2. What is capital fight when looking at it form investor psychology?
Large number of individuals and cos exchange of domestic currencies for a foreign 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
Lead and lag strategies
Impact of currency exchange rate changes on reported financial statements

3. What are three factors that impact a country's future exchange rate movements?
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
Inflation - interest rate - and market psychology
Interest rates and money supply
1. distribute productive assets 2. ensure assets are not concentrated in countries

4. What are the types of Exchange Rate Fluctuations?
Measurement of past events
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Monetary and fiscal policies

5. What implications does understanding foreign exchange rates have on managers?
domino effect
Measurement of past events
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
It helps them understand the influence of exchange rates on profitability of trade investment deals

6. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Increase currency values and protect against increases in foreign prices of goods and services
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
Lending of funds in foreign currencies

7. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates and forward rates
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
It helps them understand the influence of exchange rates on profitability of trade investment deals

8. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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

9. What is economic exposure?
Firms future international earning power
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
Increase their exposure to banking -'s banking center
Delay payables if currency is expected to depreciate

10. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Interest rates and money supply
Increase currency values and protect against increases in foreign prices of goods and services

11. What is free convertible currency?
London - New York - Tokyo - and Singapore
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Currency of one country can be exchanged for the currency of another country

12. What is the third thing that determines the forex rates?
Lending of funds in foreign currencies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
London - New York - Tokyo - and Singapore
Productivity and balance payments

13. How and What is the purpose of distributing assets?
London - New York - Tokyo - and Singapore
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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. protect resources efficiently 2. ensure correct mix of tactics and strategies

14. What do monetary policies do?
agreed upon austerity
Spot rates - forward rates - and swaps
Obligations for the purchase or sale of goods and services at previously agreed prices
Control the amount of money in circulation - enforced by government policies - focus on growth rate

15. What is the second thing that determines the Forex rates?
Interest rates and money supply
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rate policies

16. What holds true to Purchase Power Parity Theory?
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
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

17. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
The income form individual transacations
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Goods and services of one country can be exchanged for the goods and services of another country

18. What are the characteristics of economic exposure?
Forward exchange or spot exchange
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Exchange rate policies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

19. What is externally convertible currency
True
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Paying foreign currency payable before dues as a result expected currency appreciation

20. What is the fourth roles of the U.S. dollar outside the U.S.?
up to date
Vehicle currency(transaction between 2 less commonly used currencies)
True
Monetary and fiscal policies

21. What is the second characteristic of transaction exposure?
Impact of currency exchange rate changes on reported financial statements
Measurement of past events
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Obligations for the purchase or sale of goods and services at previously agreed prices

22. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

23. What is the fourth thing that determines the forex rates?
Vehicle currency(transaction between 2 less commonly used currencies)
Exchange rate policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Delay payables if currency is expected to depreciate

24. Marekts are open...
Spot rates and forward rates
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
24/7

25. When do countries use the foreign exchange market?
An attempt to collect currency receivables early as result of expected depreciation
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Relative price differences and ppp
Productivity and balance payments

26. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
Forward exchange or spot exchange
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

27. What are the three ways of insuring against a Forex risk?
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 - forward rates - and swaps
Issue mo good loans so that profits from new business can eat away the losses form the bad
Delay payables if currency is expected to depreciate

28. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Forward exchange or spot exchange
Productivity and balance payments

29. What is the bandwagon effect when looking at form investor psychology ?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Group of investors movement in the same direction and same time or government intervention
A common reference
agreed upon austerity

30. What is the second characteristic of lead strategy?
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
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
Vehicle currency(transaction between 2 less commonly used currencies)
Paying foreign currency payable before dues as a result expected currency appreciation

31. 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
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
Transaction - translation and economic exposure

32. What causes big mac prices to vary?
Currency of one country can be exchanged for the currency of another country
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Forward exchange or spot exchange
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

33. When do countries use foreign exchange market?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Investor psychology

34. What is a spot rate?
Reserve currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Delay collection of foreign currency receivables if currency is exception to appreciate

35. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
State driven recapitalization are now needed
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Paying foreign currency payable before dues as a result expected currency appreciation

36. What is the second characteristic of lag strategy?
Lead and lag strategies
Delay payables if currency is expected to depreciate
Exchange rates are determined by the demand and supply for different currencies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

37. It is important to stay __________ with your current events
Collecting & spending of money by the government
Exchange rate policies
True
up to date

38. What is the law of one price?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Exchange rates are determined by the demand and supply for different 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

39. What are the two ways to reduce economic exposure?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Increase their exposure to banking -'s banking center
agreed upon austerity
Delay payables if currency is expected to depreciate

40. What are other strategies for managing forex risk?
Group of investors movement in the same direction and same time or government intervention
Issue mo good loans so that profits from new business can eat away the losses form the bad
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

41. 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
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. protect resources efficiently 2. ensure correct mix of tactics and strategies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

42. What is the third characteristic of transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
up to date
Borrowing of funds in foreign currency

43. Most Transaction inovolve...
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase currency values and protect against increases in foreign prices of goods and services
u.s. dollar
Forward exchange or spot exchange

44. What is non convertible currency?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Interest rates and money supply
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Goods and services of one country can be exchanged for the goods and services of another country

45. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Monetary and fiscal policies
State driven recapitalization are now needed
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values

46. What are the first two things that determine Forex rates?
Borrowing of funds in foreign currency
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
Relative price differences and ppp

47. 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
It helps them understand the influence of exchange rates on profitability of trade investment deals
Impact of currency exchange rate changes on reported financial statements
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

48. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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
agreed upon austerity
Currency of one country can be exchanged for the currency of another country

49. What are the purposes of fiscal policies?
Group of investors movement in the same direction and same time or government intervention
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Currency of one country can be exchanged for the currency of another country
Collecting & spending of money by the government

50. What are two methods of reducing translation and transaction exposure?
Paying foreign currency payable before dues as a result expected currency appreciation
Lead and lag strategies
London - New York - Tokyo - and Singapore
Vehicle currency(transaction between 2 less commonly used currencies)