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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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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 third characteristic of transaction exposure?
London - New York - Tokyo - and Singapore
Borrowing of funds in foreign currency
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
u.s. dollar

2. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
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
u.s. dollar
An attempt to collect currency receivables early as result of expected depreciation

3. When do countries use foreign exchange market?
Currency of one country can be exchanged for the currency of another country
Interest rates and money supply
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

4. What is the fourth roles of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
Vehicle currency(transaction between 2 less commonly used currencies)
True
Relative price differences and ppp

5. 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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
A common reference
Transaction - translation and economic exposure

6. What are two methods of reducing translation and transaction exposure?
agreed upon austerity
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
The income form individual transacations
Lead and lag strategies

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

8. What is the second issue with EFSF?
Obligations for the purchase or sale of goods and services at previously agreed prices
Banks stability was measure at a 5% capital adequacy ratio
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

9. What is the law of one price?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
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
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

10. What is the fourth characteristic of transaction exposure?
Group of investors movement in the same direction and same time or government intervention
Interest rates and money supply
Increase currency values and protect against increases in foreign prices of goods and services
Lending of funds in foreign currencies

11. What is the third thing that determines the forex 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
Productivity and balance payments
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

12. Marekts are open...
Group of investors movement in the same direction and same time or government intervention
24/7
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

13. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Issue mo good loans so that profits from new business can eat away the losses form the bad
Group of investors movement in the same direction and same time or government intervention
Affected by fluctuation in foreign exchange values

14. What is the fourth thing that determines the forex rates?
Exchange rate policies
Borrowing of funds in foreign currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

15. What is the second thing that determines the Forex rates?
Interest rates and money supply
Lead and lag strategies
Collecting & spending of money by the government
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

16. What is the first issue with EFSF?
Obligations for the purchase or sale of goods and services at previously agreed prices
Delay payables if currency is expected to depreciate
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
Productivity and balance payments

17. What are some strategies for managing forex risk?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Establish central control and attempts to forecast future exchange rates
Productivity and balance payments
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

18. What is capital fight when looking at it form investor psychology?
u.s. dollar
1. distribute productive assets 2. ensure assets are not concentrated in countries
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Goods and services of one country can be exchanged for the goods and services of another country

19. What are other strategies for managing forex risk?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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)
domino effect

20. What are the important trading centers?
Spot rates - forward rates - and swaps
Lending of funds in foreign currencies
London - New York - Tokyo - and Singapore
The income form individual transacations

21. What implications does understanding foreign exchange rates have on managers?
It helps them understand the influence of exchange rates on profitability of trade investment deals
A common reference
Firms future international earning power
Investor psychology

22. What is the first characteristic of transaction exposure ?
Paying foreign currency payable before dues as a result expected currency appreciation
Transaction - translation and economic exposure
Affected by fluctuation in foreign exchange values
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

23. How can transaction exposure be described?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The income form individual transacations
True
Forward exchange or spot exchange

24. What is arbitrage?
Delay payables if currency is expected to depreciate
Forward exchange or spot exchange
Impact of currency exchange rate changes on reported financial statements
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

25. What is the characteristic of translation expose?
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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Investor psychology
Measurement of past events

26. What are the two ways to quote currency?
Spot rates and forward rates
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Lending of funds in foreign currencies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

27. What is hedging?

28. What is the real exchange rate?
Vehicle currency(transaction between 2 less commonly used currencies)
Establish central control and attempts to forecast future exchange rates
domino effect
Goods and services of one country can be exchanged for the goods and services of another country

29. What is the fifth thing that determines the forex rates?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
Increase currency values and protect against increases in foreign prices of goods and services
Investor psychology

30. What are some factors that influence exchange rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Spot rates - forward rates - and swaps
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Affected by fluctuation in foreign exchange values

31. What is the third role 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
Reserve currency
Monetary and fiscal policies

32. When do countries use the foreign exchange market?
Exchange rates are determined by the demand and supply for different currencies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign 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
Paying foreign currency payable before dues as a result expected currency appreciation

33. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Spot rates - forward rates - and swaps
Transportation costs - trade barriers - and not trade inputs such as rents or wages
True
Forward exchange or spot exchange

34. What do monetary policies do?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
1. distribute productive assets 2. ensure assets are not concentrated in countries

35. How do you insure or hedge against a Forex risk?
u.s. dollar
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate
Forward exchange or spot exchange

36. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
The income form individual transacations
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
1. distribute productive assets 2. ensure assets are not concentrated in countries

37. What is free convertible currency?
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Productivity and balance payments
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

38. What holds true to Purchase Power Parity Theory?
Spot rates and forward rates
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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
Exchange rates are determined by the demand and supply for different currencies

39. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
London - New York - Tokyo - and Singapore

40. What is the nature of the forex market?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Monetary and fiscal policies
Borrowing of funds in foreign currency
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

41. What is the second characteristic of transaction exposure?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

42. How do you establish central control?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Interest rates and money supply
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

43. What are the first two things that determine Forex rates?
True
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Goods and services of one country can be exchanged for the goods and services of another country
Relative price differences and ppp

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

45. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
State driven recapitalization are now needed
Affected by fluctuation in foreign exchange values
Control the amount of money in circulation - enforced by government policies - focus on growth rate

46. What is the bandwagon effect when looking at form investor psychology ?
Transaction - translation and economic exposure
Spot rates and forward rates
An attempt to collect currency receivables early as result of expected depreciation
Group of investors movement in the same direction and same time or government intervention

47. What is a spot rate?
Increase their exposure to banking -'s banking center
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

48. What is the second characteristic of lead strategy?
Inflation - interest rate - and market psychology
Lending of funds in foreign currencies
Paying foreign currency payable before dues as a result expected currency appreciation
Delay payables if currency is expected to depreciate

49. What are the purposes of fiscal policies?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Collecting & spending of money by the government
Productivity and balance payments

50. It is important to stay __________ with your current events
up to date
24/7
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Affected by fluctuation in foreign exchange values