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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 translation exposure be described?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Collecting & spending of money by the government
Impact of currency exchange rate changes on reported financial statements
Paying foreign currency payable before dues as a result expected currency appreciation

2. Burger economics!!! Why do we use it?
Relative price differences and ppp
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
Affected by fluctuation in foreign exchange values

3. What is the second thing that determines the Forex rates?
Interest rates and money supply
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Reserve currency
The income form individual transacations

4. Defaulting on debt has a __________ that intertwines all countries in Europe.
Spot rates and forward rates
Transaction - translation and economic exposure
domino effect
Forward exchange or spot exchange

5. What is the law of one price?
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Increase currency values and protect against increases in foreign prices of goods and services
The income form individual transacations

6. What are some characteristics of swaps?
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
Establish central control and attempts to forecast future exchange rates
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)

7. Marekts are open...
24/7
It helps them understand the influence of exchange rates on profitability of trade investment deals
Exchange rates are determined by the demand and supply for different currencies
London - New York - Tokyo - and Singapore

8. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
The income form individual transacations
Borrowing of funds in foreign currency
State driven recapitalization are now needed

9. According to economic theories of exchage rate determination?
Delay collection of foreign currency receivables if currency is exception to appreciate
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)
Affected by fluctuation in foreign exchange values

10. What are the characteristics of economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Lending of funds in foreign currencies
An attempt to collect currency receivables early as result of expected depreciation
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

11. What is the second characteristic of lag strategy?
Exchange rate policies
An attempt to collect currency receivables early as result of expected depreciation
Delay payables if currency is expected to depreciate
Spot rates - forward rates - and swaps

12. Greece has not defaulted because it has not been able to fully implement its...
Collecting & spending of money by the government
A common reference
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
agreed upon austerity

13. 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
Paying foreign currency payable before dues as a result expected currency appreciation
Borrowing of funds in foreign currency
True

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

15. What is economic exposure?
Paying foreign currency payable before dues as a result expected currency appreciation
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
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

16. What are three factors that impact a country's future exchange rate movements?
State driven recapitalization are now needed
Inflation - interest rate - and market psychology
An attempt to collect currency receivables early as result of expected depreciation
Spot rates and forward rates

17. What is the first roels of the U.S. dollar outside the U.S.?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
A common reference
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Reserve currency

18. What is the second issue with EFSF?
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
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Forward exchange or spot exchange

19. What are some strategies for managing forex risk?
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
Establish central control and attempts to forecast future exchange rates
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

20. What is the characteristic of translation expose?
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
Measurement of past events
24/7
Vehicle currency(transaction between 2 less commonly used currencies)

21. What are the three ways of insuring against a Forex risk?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Spot rates - forward rates - and swaps
Delay payables if currency is expected to depreciate
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

22. 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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Establish central control and attempts to forecast future exchange rates

23. What are the three different types of foreign exchange rate risks?
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
Transaction - translation and economic 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
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

24. How do you establish central control?
Relative price differences and ppp
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
State driven recapitalization are now needed

25. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
Productivity and balance payments
Vehicle currency(transaction between 2 less commonly used 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

26. What is the fourth thing that determines the forex rates?
Affected by fluctuation in foreign exchange values
Borrowing of funds in foreign currency
Exchange rate policies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

27. What is the first issue with EFSF?
Reserve currency
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
Spot rates and forward rates
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

28. Most Transaction inovolve...
u.s. dollar
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
Increase their exposure to banking -'s banking center
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

29. What do monetary policies do?
Forward exchange or spot exchange
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth rate

30. What is a spot rate?
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
1. distribute productive assets 2. ensure assets are not concentrated in countries
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

31. No single theory can explain explain the causes the value of currencies to change. True or False?
True
domino effect
Goods and services of one country can be exchanged for the goods and services of another country
Establish central control and attempts to forecast future exchange rates

32. What are the important trading centers?
Monetary and fiscal policies
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
London - New York - Tokyo - and Singapore
True

33. What causes big mac prices to vary?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Group of investors movement in the same direction and same time or government intervention
True
State driven recapitalization are now needed

34. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Measurement of past events
u.s. dollar
Transaction - translation and economic exposure

35. What is the fifth thing that determines the forex rates?
True
u.s. dollar
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
Investor psychology

36. Bailout Fund of EFSF - What is this shiz nitz?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Vehicle currency(transaction between 2 less commonly used currencies)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

37. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
Increase their exposure to banking -'s banking center
An attempt to collect currency receivables early as result of expected depreciation
True

38. 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
Inflation - interest rate - and market psychology
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. 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

39. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
True
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Vehicle currency(transaction between 2 less commonly used currencies)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

40. What is the second characteristic of transaction exposure?
Borrowing of funds in foreign currency
True
Obligations for the purchase or sale of goods and services at previously agreed prices
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

41. How can transaction exposure be described?
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
The income form individual transacations
Delay payables if currency is expected to depreciate
Relative price differences and ppp

42. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
State driven recapitalization are now needed
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

43. What implications does understanding foreign exchange rates have on managers?
The income form individual transacations
It helps them understand the influence of exchange rates on profitability of trade investment deals
Intervention currency (peg country currency)
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

44. 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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
u.s. dollar
Issue mo good loans so that profits from new business can eat away the losses form the bad

45. What is the fourth characteristic of transaction exposure?
Lead and lag strategies
Lending of funds in foreign currencies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services

46. What is the purpose of not concentrating assets in countries?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Increase currency values and protect against increases in foreign prices of goods and services
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation

47. How do you insure or hedge against a Forex risk?
Spot rates - forward rates - and swaps
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Forward exchange or spot exchange

48. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Group of investors movement in the same direction and same time or government intervention
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate

49. What are the two ways to quote currency?
domino effect
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates and forward rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

50. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
24/7
Delay payables if currency is expected to depreciate
Exchange rate policies