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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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1. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Impact of currency exchange rate changes on reported financial statements
Monetary and fiscal policies
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

2. What is hedging?

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3. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
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
Delay collection of foreign currency receivables if currency is exception to appreciate
True
Establish central control and attempts to forecast future exchange rates

4. What is the second issue with EFSF?
The income form individual transacations
Paying foreign currency payable before dues as a result expected currency appreciation
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

5. 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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
State driven recapitalization are now needed
Increase currency values and protect against increases in foreign prices of goods and services

6. What is the fourth thing that determines the forex rates?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
domino effect
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Exchange rate policies

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

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8. According to economic theories of exchage rate determination?
Goods and services of one country can be exchanged for the goods and services of another country
Exchange rates are determined by the demand and supply for different currencies
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

9. What are some factors that influence exchange rates?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Impact of currency exchange rate changes on reported financial statements
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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

10. What are other strategies for managing forex risk?
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
Spot rates - forward rates - and swaps
Obligations for the purchase or sale of goods and services at previously agreed prices
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

11. What holds true to Purchase Power Parity Theory?
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
Impact of currency exchange rate changes on reported financial statements
It helps them understand the influence of exchange rates on profitability of trade investment deals
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

12. What implications does understanding foreign exchange rates have on managers?
Spot rates and forward rates
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
Delay payables if currency is expected to depreciate

13. What is the first characteristic of lag strategy?
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation
domino effect
Delay collection of foreign currency receivables if currency is exception to appreciate

14. How do you insure or hedge against a Forex risk?
A common reference
Impact of currency exchange rate changes on reported financial statements
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Forward exchange or spot exchange

15. What is free convertible currency?
Delay payables if currency is expected to depreciate
Group of investors movement in the same direction and same time or government intervention
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

16. What is a forward rate?
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
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
Lead and lag strategies

17. 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
The income form individual transacations
Obligations for the purchase or sale of goods and services at previously agreed prices
Transportation costs - trade barriers - and not trade inputs such as rents or wages

18. How can translation exposure be described?
Paying foreign currency payable before dues as a result expected currency appreciation
1. distribute productive assets 2. ensure assets are not concentrated in countries
Impact of currency exchange rate changes on reported financial statements
Monetary and fiscal policies

19. No single theory can explain explain the causes the value of currencies to change. True or False?
Vehicle currency(transaction between 2 less commonly used currencies)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
True

20. Greece has not defaulted because it has not been able to fully implement its...
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
agreed upon austerity
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
A common reference

21. What are the three ways of insuring against a Forex risk?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates - forward rates - and swaps
Issue mo good loans so that profits from new business can eat away the losses form the bad

22. What is the first characteristic of transaction exposure ?
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Increase their exposure to banking -'s banking center
Affected by fluctuation in foreign exchange values

23. The euro faces risks fo recapitalization?
Exchange rates are determined by the demand and supply for different currencies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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

24. What is the fourth characteristic of transaction exposure?
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
An attempt to collect currency receivables early as result of expected depreciation
Productivity and balance payments
Lending of funds in foreign currencies

25. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
True
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)

26. What are the important trading centers?
24/7
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore
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

27. Most Transaction inovolve...
u.s. dollar
agreed upon austerity
Delay payables if currency is expected to depreciate
Monetary and fiscal policies

28. 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.
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Lending of funds in foreign currencies
Reserve currency

29. What are the types of Exchange Rate Fluctuations?
Borrowing of funds in foreign currency
Monetary and fiscal policies
Measurement of past events
u.s. dollar

30. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
up to date
Issue mo good loans so that profits from new business can eat away the losses form the bad
24/7
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

31. What are some strategies for managing forex risk?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Establish central control and attempts to forecast future exchange rates
domino effect

32. What are the purposes of fiscal policies?
State driven recapitalization are now needed
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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

33. What are the two ways to reduce economic exposure?
Interest rates and money supply
up to date
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rates are determined by the demand and supply for different currencies

34. What is the first characteristic of lead strategy?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
An attempt to collect currency receivables early as result of expected depreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Increase their exposure to banking -'s banking center

35. 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
An attempt to collect currency receivables early as result of expected depreciation
agreed upon austerity
Delay collection of foreign currency receivables if currency is exception to appreciate

36. When do countries use foreign exchange market?
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic 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
Measurement of past events

37. What is the first issue with EFSF?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Delay payables if currency is expected to depreciate
up to date
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

38. What is the second characteristic of lead strategy?
Measurement of past events
Investor psychology
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation

39. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
True
True
Delay collection of foreign currency receivables if currency is exception to appreciate

40. What is the characteristic of translation expose?
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
Goods and services of one country can be exchanged for the goods and services of another country
Measurement of past events
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

41. What is the fifth thing that determines the forex rates?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Investor psychology
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Delay payables if currency is expected to depreciate

42. How can transaction exposure be described?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
The income form individual transacations
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate

43. It is important to stay __________ with your current events
Vehicle currency(transaction between 2 less commonly used currencies)
24/7
up to date
Increase their exposure to banking -'s banking center

44. What causes big mac prices to vary?
True
A common reference
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

45. What is the third thing that determines the forex rates?
Productivity and balance payments
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
domino effect
True

46. What is the purpose of not concentrating assets in countries?
Firms future international earning power
Productivity and balance payments
An attempt to collect currency receivables early as result of expected depreciation
Increase currency values and protect against increases in foreign prices of goods and services

47. How and What is the purpose of distributing assets?
Interest rates and money supply
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange 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
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

48. What is the first roels of the U.S. dollar outside the U.S.?
A common reference
Reserve currency
up to date
State driven recapitalization are now needed

49. What is the second characteristic of lag strategy?
Forward exchange or spot exchange
Delay payables if currency is expected to depreciate
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Transportation costs - trade barriers - and not trade inputs such as rents or wages

50. What is the second thing that determines the Forex rates?
A common reference
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Interest rates and money supply
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)