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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. How can translation exposure be described?
Establish central control and attempts to forecast future exchange rates
Borrowing of funds in foreign currency
Impact of currency exchange rate changes on reported financial statements
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

2. What is the nature of the forex market?
It helps them understand the influence of exchange rates on profitability of trade investment deals
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
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

3. What do monetary policies do?
Lead and lag strategies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
A common reference
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

4. What are the types of Exchange Rate Fluctuations?
Establish central control and attempts to forecast future exchange rates
Monetary and fiscal policies
24/7
Firms future international earning power

5. According to economic theories of exchage rate determination?
The income form individual transacations
1. distribute productive assets 2. ensure assets are not concentrated in countries
Exchange rates are determined by the demand and supply for different currencies
London - New York - Tokyo - and Singapore

6. What are the purposes of fiscal policies?
domino effect
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Monetary and fiscal policies
Collecting & spending of money by the government

7. What are the two ways to reduce economic exposure?
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
London - New York - Tokyo - and Singapore
Currency of one country can be exchanged for the currency of another country

8. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
Forward exchange or spot exchange
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

9. What is a forward rate?
True
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
Measurement of past events

10. What is economic exposure?
Firms future international earning power
Lending of funds in foreign currencies
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

11. What are other strategies for managing forex risk?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Transaction - translation and economic exposure

12. Most Transaction inovolve...
u.s. dollar
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
Spot rates and forward rates
Lending of funds in foreign currencies

13. What is the fourth thing that determines the forex rates?
Intervention currency (peg country currency)
Relative price differences and ppp
Exchange rate policies
Lead and lag strategies

14. What is externally convertible currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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
Forward exchange or spot exchange
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

15. 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
The income form individual transacations
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates - forward rates - and swaps

16. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Vehicle currency(transaction between 2 less commonly used currencies)
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Investor psychology

17. What is free convertible 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
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Spot rates and forward rates

18. What is the fifth thing that determines the forex rates?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Investor psychology

19. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Forward exchange or spot exchange
A common reference

20. What is hedging?

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21. What are two methods of reducing translation and transaction exposure?
Increase their exposure to banking -'s banking center
1. distribute productive assets 2. ensure assets are not concentrated in countries
Measurement of past events
Lead and lag strategies

22. What is the real exchange rate?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Spot rates and forward rates
Goods and services of one country can be exchanged for the goods and services of another country
Impact of currency exchange rate changes on reported financial statements

23. What are the first two things that determine Forex rates?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp
Interest rates and money supply

24. 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
London - New York - Tokyo - and Singapore
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
True

25. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
An attempt to collect currency receivables early as result of expected depreciation
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates and forward rates

26. What implications does understanding foreign exchange rates have on managers?
Relative price differences and ppp
It helps them understand the influence of exchange rates on profitability of trade investment deals
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Spot rates and forward rates

27. How do you establish central control?
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
up to date
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

28. What is the law of one price?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
True
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
domino effect

29. Greece has not defaulted because it has not been able to fully implement its...
An attempt to collect currency receivables early as result of expected depreciation
Relative price differences and ppp
Exchange rates are determined by the demand and supply for different currencies
agreed upon austerity

30. What is the first issue with EFSF?
A common reference
True
Interest rates and money supply
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

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

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32. What is the first characteristic of lead strategy?
Inflation - interest rate - and market psychology
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
Spot rates - forward rates - and swaps

33. Bailout Fund of EFSF - What is this shiz nitz?
London - New York - Tokyo - and Singapore
Collecting & spending of money by the government
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

34. What is a currency swamp?
Lead and lag strategies
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
Investor psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

35. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
up to date
Productivity and balance payments
It helps them understand the influence of exchange rates on profitability of trade investment deals
True

36. What are three factors that impact a country's future exchange rate movements?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Inflation - interest rate - and market psychology

37. What is the third thing that determines the forex rates?
A common reference
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Productivity and balance payments

38. What is non convertible currency?
Obligations for the purchase or sale of goods and services at previously agreed prices
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
u.s. dollar
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

39. What is the nominal exchange rate?
up to date
Currency of one country can be exchanged for the currency of another country
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

40. 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.
Relative price differences and ppp
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
u.s. dollar

41. What is the first characteristic of transaction exposure ?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Vehicle currency(transaction between 2 less commonly used currencies)
Affected by fluctuation in foreign exchange values

42. What is the characteristic of translation expose?
Measurement of past events
up to date
Intervention currency (peg country currency)
Spot rates - forward rates - and swaps

43. What is the third role of the U.S. dollar outside the U.S.?
Reserve 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
True
Large number of individuals and cos exchange of domestic currencies for a foreign currency

44. What is arbitrage?
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)
True
Exchange rates are determined by the demand and supply for different currencies

45. How and What is the purpose of distributing assets?
Impact of currency exchange rate changes on reported financial statements
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rates are determined by the demand and supply for different currencies
Spot rates - forward rates - and swaps

46. 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
Monetary and fiscal policies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

47. What holds true to Purchase Power Parity Theory?
Exchange rate policies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs

48. It is important to stay __________ with your current events
Monetary and fiscal policies
Increase currency values and protect against increases in foreign prices of goods and services
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
up to date

49. What is the first roels of the U.S. dollar outside the U.S.?
Increase currency values and protect against increases in foreign prices of goods and services
A common reference
Delay collection of foreign currency receivables if currency is exception to appreciate
True

50. Burger economics!!! Why do we use it?
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
Firms future international earning power
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

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Foreign Exchange Market

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