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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 implications does understanding foreign exchange rates have on managers?
Lending of funds in foreign currencies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
It helps them understand the influence of exchange rates on profitability of trade investment deals
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

2. 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
Exchange rates are determined by the demand and supply for different currencies
Goods and services of one country can be exchanged for the goods and services of another country
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

3. Burger economics!!! Why do we use it?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert 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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Affected by fluctuation in foreign exchange values

4. What is the first characteristic of transaction exposure ?
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 - forward rates - and swaps
Affected by fluctuation in foreign exchange values
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

5. How and What is the purpose of distributing assets?
Transaction - translation and economic exposure
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in 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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

6. What is the fourth characteristic of transaction exposure?
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Lending of funds in foreign currencies
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

7. What is the third thing that determines the forex rates?
Affected by fluctuation in foreign exchange values
Banks stability was measure at a 5% capital adequacy ratio
Measurement of past events
Productivity and balance payments

8. Marekts are open...
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. distribute productive assets 2. ensure assets are not concentrated in countries
24/7
Inflation - interest rate - and market psychology

9. What is externally convertible currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
An attempt to collect currency receivables early as result of expected depreciation
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

10. What are the characteristics of economic exposure?
Transaction - translation and economic exposure
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

11. What is the first issue with EFSF?
Affected by fluctuation in foreign exchange values
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Interest rates and money supply

12. How can transaction exposure be described?
Intervention currency (peg country currency)
Lead and lag strategies
Vehicle currency(transaction between 2 less commonly used currencies)
The income form individual transacations

13. How do you insure or hedge against a Forex risk?
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
24/7
Forward exchange or spot exchange
Establish central control and attempts to forecast future exchange rates

14. It is important to stay __________ with your current events
Impact of currency exchange rate changes on reported financial statements
Banks stability was measure at a 5% capital adequacy ratio
Borrowing of funds in foreign currency
up to date

15. What is arbitrage?
True
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Spot rates - forward rates - and swaps
Interest rates and money supply

16. What is economic exposure?
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
Firms future international earning power
Banks stability was measure at a 5% capital adequacy ratio
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency

17. What are the important trading centers?
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
up to date
London - New York - Tokyo - and Singapore
Measurement of past events

18. No single theory can explain explain the causes the value of currencies to change. True or False?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Measurement of past events
Collecting & spending of money by the government
True

19. What are the two ways to reduce economic exposure?
up to date
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Investor psychology

20. What is the second thing that determines the Forex rates?
Interest rates and money supply
A common reference
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

21. What are some characteristics of swaps?
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
Relative price differences and ppp
Collecting & spending of money by the government
Measurement of past events

22. What is hedging?

23. What is a forward rate?
An attempt to collect currency receivables early as result of expected depreciation
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Productivity and balance payments
Relative price differences and ppp

24. What are some factors that influence exchange rates?
Reserve currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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
Borrowing of funds in foreign currency

25. Most Transaction inovolve...
Interest rates and money supply
True
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar

26. What is the law of one price?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Banks stability was measure at a 5% capital adequacy ratio
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
A common reference

27. Bailout Fund of EFSF - What is this shiz nitz?
Interest rates and money supply
Group of investors movement in the same direction and same time or government intervention
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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

28. What is the second characteristic of lag strategy?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
A common reference
Delay payables if currency is expected to depreciate
Transportation costs - trade barriers - and not trade inputs such as rents or wages

29. What is the second characteristic of lead strategy?
Measurement of past events
Paying foreign currency payable before dues as a result expected currency appreciation
24/7
Goods and services of one country can be exchanged for the goods and services of another country

30. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
State driven recapitalization are now needed
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio

31. When do countries use the foreign exchange market?
Increase currency values and protect against increases in foreign prices of goods and services
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.
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

32. What is the first characteristic of lead strategy?
An attempt to collect currency receivables early as result of expected depreciation
domino effect
London - New York - Tokyo - and Singapore
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

33. What is the nominal exchange rate?
Currency of one country can be exchanged for the currency of another country
agreed upon austerity
domino effect
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

34. What is the first characteristic of lag strategy?
Group of investors movement in the same direction and same time or government intervention
Delay collection of foreign currency receivables if currency is exception to appreciate
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Exchange rate policies

35. What holds true to Purchase Power Parity Theory?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Collecting & spending of money by the government
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

36. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
Goods and services of one country can be exchanged for the goods and services of another country
Firms future international earning power
Spot rates and forward rates
True

37. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
Spot rates and forward rates
Borrowing of funds in foreign currency
Paying foreign currency payable before dues as a result expected currency appreciation

38. How can translation exposure be described?
Transaction - translation and economic exposure
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements

39. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Large number of individuals and cos exchange of domestic currencies for a foreign 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
Group of investors movement in the same direction and same time or government intervention

40. What is the characteristic of translation expose?
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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

41. 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
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
An attempt to collect currency receivables early as result of expected depreciation
Vehicle currency(transaction between 2 less commonly used currencies)

42. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Affected by fluctuation in foreign exchange values
Delay payables if currency is expected to depreciate
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

43. What is the second issue with EFSF?
Spot rates - forward rates - and swaps
The income form individual transacations
Large number of individuals and cos exchange of domestic currencies for a foreign 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

44. What are some strategies for managing forex risk?
Increase their exposure to banking -'s banking center
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Establish central control and attempts to forecast future exchange rates
Delay payables if currency is expected to depreciate

45. What is the fourth thing that determines the forex rates?
Exchange rate policies
agreed upon austerity
Forward exchange or spot exchange
Control the amount of money in circulation - enforced by government policies - focus on growth rate

46. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
State driven recapitalization are now needed
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

47. What is the purpose of not concentrating assets in countries?
Increase currency values and protect against increases in foreign prices of goods and services
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Borrowing of funds in foreign currency

48. What are the first two things that determine Forex rates?
Currency of one country can be exchanged for the currency of another country
Increase currency values and protect against increases in foreign prices of goods and services
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

49. What causes big mac prices to vary?
An attempt to collect currency receivables early as result of expected depreciation
Delay collection of foreign currency receivables if currency is exception to appreciate
Inflation - interest rate - and market psychology
Transportation costs - trade barriers - and not trade inputs such as rents or wages

50. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Obligations for the purchase or sale of goods and services at previously agreed prices
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;future delievery in 30/60/90/180 days