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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 economic exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Firms future international earning power
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

2. Greece has not defaulted because it has not been able to fully implement its...
Measurement of past events
Delay payables if currency is expected to depreciate
London - New York - Tokyo - and Singapore
agreed upon austerity

3. 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
Obligations for the purchase or sale of goods and services at previously agreed prices
London - New York - Tokyo - and Singapore

4. What is the fourth roles of the U.S. dollar outside the U.S.?
Collecting & spending of money by the government
True
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

5. What is the fourth thing that determines the forex rates?
Exchange rate policies
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
Paying foreign currency payable before dues as a result expected currency appreciation

6. What is the second role of the U.S. dollar outside the U.S. ?
Banks stability was measure at a 5% capital adequacy ratio
Inflation - interest rate - and market psychology
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Intervention currency (peg country currency)

7. What is the purpose of not concentrating assets in countries?
Delay payables if currency is expected to depreciate
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Investor psychology
Increase currency values and protect against increases in foreign prices of goods and services

8. According to economic theories of exchage rate determination?
Measurement of past events
Exchange rates are determined by the demand and supply for different currencies
Relative price differences and ppp
24/7

9. What are some characteristics of swaps?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
up to date
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

10. What are the two ways to reduce economic exposure?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
A common reference
Transportation costs - trade barriers - and not trade inputs such as rents or wages

11. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
Monetary and fiscal policies
Group of investors movement in the same direction and same time or government intervention

12. What is the nominal exchange rate?
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
Productivity and balance payments
Currency of one country can be exchanged for the currency of another country

13. When do countries use foreign exchange market?
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
Forward exchange or spot exchange
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

14. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Relative price differences and ppp

15. What are some factors that influence 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
Measurement of past events
Delay payables if currency is expected to depreciate
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

16. What are the important trading centers?
Exchange rate policies
London - New York - Tokyo - and Singapore
24/7
Paying foreign currency payable before dues as a result expected currency appreciation

17. What are some strategies for managing forex risk?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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)
Paying foreign currency payable before dues as a result expected currency appreciation

18. What is the fourth characteristic of transaction exposure?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Lending of funds in foreign currencies
Exchange rate policies
Firms future international earning power

19. What are three factors that impact a country's future exchange rate movements?
Measurement of past events
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Inflation - interest rate - and market psychology

20. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
Establish central control and attempts to forecast future exchange rates
Productivity and balance payments
Collecting & spending of money by the government

21. What are the characteristics of economic exposure?
True
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
24/7
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

22. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Measurement of past events
Exchange rate policies

23. 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
Borrowing of funds in foreign currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Currency of one country can be exchanged for the currency of another country

24. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Group of investors movement in the same direction and same time or government intervention
State driven recapitalization are now needed
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

25. What are two methods of reducing translation and transaction exposure?
Investor psychology
24/7
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Lead and lag strategies

26. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Delay payables if currency is expected to depreciate
Lead and lag strategies
Lending of funds in foreign currencies

27. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Monetary and fiscal policies
True

28. What is the second thing that determines the Forex rates?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Interest rates and money supply
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

29. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Intervention currency (peg country currency)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Issue mo good loans so that profits from new business can eat away the losses form the bad

30. Marekts are open...
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
24/7

31. What implications does understanding foreign exchange rates have on managers?
Lead and lag strategies
1. distribute productive assets 2. ensure assets are not concentrated in countries
It helps them understand the influence of exchange rates on profitability of trade investment deals
Inflation - interest rate - and market psychology

32. What is the second characteristic of lead strategy?
True
Spot rates and forward rates
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Paying foreign currency payable before dues as a result expected currency appreciation

33. What are the purposes of fiscal policies?
Reserve currency
Collecting & spending of money by the government
True
Impact of currency exchange rate changes on reported financial statements

34. What is the third thing that determines the forex rates?
Productivity and balance payments
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rates are determined by the demand and supply for different currencies
Vehicle currency(transaction between 2 less commonly used currencies)

35. What are the first two things that determine Forex rates?
u.s. dollar
Relative price differences and ppp
Issue mo good loans so that profits from new business can eat away the losses form the bad
Productivity and balance payments

36. What holds true to Purchase Power Parity Theory?
Impact of currency exchange rate changes on reported financial statements
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
Interest rates and money supply
Establish central control and attempts to forecast future exchange rates

37. When do countries use the foreign exchange market?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Increase currency values and protect against increases in foreign prices of goods and services

38. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Vehicle currency(transaction between 2 less commonly used currencies)
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

39. What are the three ways of insuring against a Forex risk?
Investor psychology
Spot rates - forward rates - and swaps
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

40. What is the second characteristic of transaction exposure?
24/7
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
Obligations for the purchase or sale of goods and services at previously agreed prices

41. It is important to stay __________ with your current events
Banks stability was measure at a 5% capital adequacy ratio
Investor psychology
up to date
True

42. No single theory can explain explain the causes the value of currencies to change. True or False?
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
Relative price differences and ppp
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

43. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Lending of funds in foreign currencies
u.s. dollar
Exchange rate policies

44. What are the two ways to quote currency?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
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

45. What is the law of one price?
24/7
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
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
Group of investors movement in the same direction and same time or government intervention

46. What is the second characteristic of lag strategy?
Reserve currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Delay payables if currency is expected to depreciate

47. What is the second issue with EFSF?
Delay payables if currency is expected to depreciate
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
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

48. What is the characteristic of translation expose?
Measurement of past events
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
24/7
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

49. What is a currency swamp?
A common reference
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

50. How can transaction exposure be described?
Exchange rates are determined by the demand and supply for different currencies
The income form individual transacations
Control the amount of money in circulation - enforced by government policies - focus on growth rate
domino effect