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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. 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
State driven recapitalization are now needed
London - New York - Tokyo - and Singapore
Impact of currency exchange rate changes on reported financial statements

2. What is the nominal exchange rate?
Borrowing of funds in foreign currency
It helps them understand the influence of exchange rates on profitability of trade investment deals
agreed upon austerity
Currency of one country can be exchanged for the currency of another country

3. What are the types of Exchange Rate Fluctuations?
Reserve currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Monetary and fiscal policies
Increase their exposure to banking -'s banking center

4. Defaulting on debt has a __________ that intertwines all countries in Europe.
domino effect
Lead and lag strategies
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

5. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
24/7
True
Investor psychology

6. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Lead and lag strategies
Relative price differences and ppp

7. What is hedging?

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

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9. Burger economics!!! Why do we use it?
agreed upon austerity
Spot rates and forward rates
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

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

11. What is the second issue with EFSF?
An attempt to collect currency receivables early as result of expected depreciation
Measurement of past events
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
Spot rates and forward rates

12. What are the characteristics of economic exposure?
London - New York - Tokyo - and Singapore
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
Interest rates and money supply
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

13. Most Transaction inovolve...
A common reference
u.s. dollar
Relative price differences and ppp
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

14. What are the important trading centers?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Large number of individuals and cos exchange of domestic currencies for a foreign currency
London - New York - Tokyo - and Singapore
Productivity and balance payments

15. What is the second thing that determines the Forex rates?
1. distribute productive assets 2. ensure assets are not concentrated in countries
Interest rates and money supply
Firms future international earning power
Monetary and fiscal policies

16. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
True
Forward exchange or spot exchange
Exchange rates are determined by the demand and supply for different currencies

17. What is the fourth roles of the U.S. dollar outside the U.S.?
Spot rates - forward rates - and swaps
Vehicle currency(transaction between 2 less commonly used currencies)
24/7
Large number of individuals and cos exchange of domestic currencies for a foreign currency

18. What are some characteristics of swaps?
Measurement of past events
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
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

19. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
A common reference
Delay collection of foreign currency receivables if currency is exception to appreciate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

20. How and What is the purpose of distributing assets?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Transaction - translation and economic exposure
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

21. What is the first issue with EFSF?
Monetary and fiscal policies
24/7
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
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

22. What is the purpose of not concentrating assets in countries?
Affected by fluctuation in foreign exchange values
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Impact of currency exchange rate changes on reported financial statements
Increase currency values and protect against increases in foreign prices of goods and services

23. How can transaction exposure be described?
The income form individual transacations
1. distribute productive assets 2. ensure assets are not concentrated in countries
Borrowing of funds in foreign currency
Relative price differences and ppp

24. What holds true to Purchase Power Parity Theory?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
domino effect
Collecting & spending of money by the government

25. 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
Increase currency values and protect against increases in foreign prices of goods and services
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 purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

26. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
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
Vehicle currency(transaction between 2 less commonly used currencies)
Increase currency values and protect against increases in foreign prices of goods and services

27. It is important to stay __________ with your current events
Delay collection of foreign currency receivables if currency is exception to appreciate
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
up to date
u.s. dollar

28. Marekts are open...
24/7
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
u.s. dollar
Vehicle currency(transaction between 2 less commonly used currencies)

29. 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.
London - New York - Tokyo - and Singapore
An attempt to collect currency receivables early as result of expected depreciation
Increase their exposure to banking -'s banking center

30. What is capital fight when looking at it form investor psychology?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Reserve currency
State driven recapitalization are now needed

31. What is the fourth characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Lending of funds in foreign currencies
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

32. What are other strategies for managing forex risk?
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

33. What is the third role of the U.S. dollar outside the U.S.?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Reserve currency
Issue mo good loans so that profits from new business can eat away the losses form the bad
up to date

34. What are two methods of reducing translation and transaction exposure?
Paying foreign currency payable before dues as a result expected currency appreciation
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Lead and lag strategies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

35. What is the third thing that determines the forex rates?
Productivity and balance payments
Measurement of past events
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

36. What is economic exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Monetary and fiscal policies
It helps them understand the influence of exchange rates on profitability of trade investment deals
Firms future international earning power

37. What is arbitrage?
Group of investors movement in the same direction and same time or government intervention
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Transaction - translation and economic exposure

38. 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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
u.s. dollar

39. What are the first two things that determine Forex rates?
Relative price differences and ppp
agreed upon austerity
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Goods and services of one country can be exchanged for the goods and services of another country

40. No single theory can explain explain the causes the value of currencies to change. True or False?
True
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Intervention currency (peg country currency)

41. What are the two ways to quote currency?
Inflation - interest rate - and market psychology
u.s. dollar
Spot rates and forward rates
1. distribute productive assets 2. ensure assets are not concentrated in countries

42. What is the first characteristic of transaction exposure ?
Establish central control and attempts to forecast future exchange rates
Increase currency values and protect against increases in foreign prices of goods and services
Affected by fluctuation in foreign exchange values
Goods and services of one country can be exchanged for the goods and services of another country

43. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
Investor psychology
Increase their exposure to banking -'s banking center
London - New York - Tokyo - and Singapore

44. What is free convertible currency?
Obligations for the purchase or sale of goods and services at previously agreed prices
Issue mo good loans so that profits from new business can eat away the losses form the bad
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Transaction - translation and economic exposure

45. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
State driven recapitalization are now needed
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
agreed upon austerity
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

46. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
Impact of currency exchange rate changes on reported financial statements
Large number of individuals and cos exchange of domestic currencies for a foreign currency
domino effect

47. What is a spot rate?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Increase currency values and protect against increases in foreign prices of goods and services
Currency of one country can be exchanged for the currency of another country

48. What are the three different types of foreign exchange rate risks?
State driven recapitalization are now needed
The income form individual transacations
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
Transaction - translation and economic exposure

49. What are the two ways to reduce economic exposure?
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
Exchange rate policies
Issue mo good loans so that profits from new business can eat away the losses form the bad

50. What are three factors that impact a country's future exchange rate movements?
Borrowing of funds in foreign currency
Collecting & spending of money by the government
Inflation - interest rate - and market psychology
u.s. dollar