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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. What do monetary policies do?
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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Increase currency values and protect against increases in foreign prices of goods and services
agreed upon austerity

2. What is the bandwagon effect when looking at form investor psychology ?
Lead and lag strategies
Increase their exposure to banking -'s banking center
Productivity and balance payments
Group of investors movement in the same direction and same time or government intervention

3. What is the real exchange rate?
True
Establish central control and attempts to forecast future exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Goods and services of one country can be exchanged for the goods and services of another country

4. What is the second characteristic of lag strategy?
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
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
agreed upon austerity

5. What is the third role of the U.S. dollar outside the U.S.?
Goods and services of one country can be exchanged for the goods and services of another country
24/7
Reserve currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

6. Marekts are open...
24/7
Borrowing of funds in foreign currency
Increase their exposure to banking -'s banking center
Establish central control and attempts to forecast future exchange rates

7. The euro faces risks fo recapitalization?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Firms future international earning power
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio

8. What is externally convertible currency
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
Affected by fluctuation in foreign exchange values
Paying foreign currency payable before dues as a result expected currency appreciation

9. What are the characteristics of economic exposure?
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

10. How can transaction exposure be described?
An attempt to collect currency receivables early as result of expected depreciation
The income form individual transacations
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
Intervention currency (peg country currency)

11. What are other strategies for managing forex risk?
Productivity and balance payments
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
An attempt to collect currency receivables early as result of expected depreciation
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

12. According to economic theories of exchage rate determination?
Exchange rates are determined by the demand and supply for different currencies
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
Spot rates - forward rates - and swaps

13. What is economic exposure?
Exchange rates are determined by the demand and supply for different currencies
Investor psychology
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Firms future international earning power

14. What is free convertible currency?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

15. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
It helps them understand the influence of exchange rates on profitability of trade investment deals
Impact of currency exchange rate changes on reported financial statements
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

16. What is the fourth characteristic of transaction exposure?
Reserve currency
Currency of one country can be exchanged for the currency of another country
Lending of funds in foreign currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

17. What is the fifth thing that determines the forex rates?
Lead and lag strategies
1. distribute productive assets 2. ensure assets are not concentrated in countries
Investor psychology
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

18. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
Increase their exposure to banking -'s banking center
Monetary and fiscal policies
State driven recapitalization are now needed
Relative price differences and ppp

19. What is the first characteristic of transaction exposure ?
Banks stability was measure at a 5% capital adequacy ratio
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
Affected by fluctuation in foreign exchange values
Intervention currency (peg country currency)

20. What is a currency swamp?
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
Delay payables if currency is expected to depreciate
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Productivity and balance payments

21. What is the characteristic of translation expose?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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
Impact of currency exchange rate changes on reported financial statements

22. What are two methods of reducing translation and transaction exposure?
Lead and lag strategies
Vehicle currency(transaction between 2 less commonly used currencies)
Reserve currency
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

23. What are the two ways to quote currency?
Productivity and balance payments
Goods and services of one country can be exchanged for the goods and services of another country
Spot rates and forward rates
u.s. dollar

24. What is the first roels of the U.S. dollar outside the U.S.?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Large number of individuals and cos exchange of domestic currencies for a foreign currency
A common reference
Lead and lag strategies

25. Defaulting on debt has a __________ that intertwines all countries in Europe.
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Group of investors movement in the same direction and same time or government intervention
domino effect

26. What holds true to Purchase Power Parity Theory?
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
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
up to date
Control the amount of money in circulation - enforced by government policies - focus on growth rate

27. What is a spot rate?
Productivity and balance payments
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)
Paying foreign currency payable before dues as a result expected currency appreciation

28. What are the two ways to reduce economic exposure?
Increase their exposure to banking -'s banking center
Forward exchange or spot exchange
1. distribute productive assets 2. ensure assets are not concentrated in countries
Transportation costs - trade barriers - and not trade inputs such as rents or wages

29. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

30. How can translation exposure be described?
State driven recapitalization are now needed
Borrowing of funds in foreign currency
Impact of currency exchange rate changes on reported financial statements
Exchange rates are determined by the demand and supply for different currencies

31. Most Transaction inovolve...
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Issue mo good loans so that profits from new business can eat away the losses form the bad
u.s. dollar
Lead and lag strategies

32. When do countries use the foreign exchange market?
Intervention currency (peg country currency)
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Firms future international earning power

33. How do you establish central control?
The income form individual transacations
Lending of funds in foreign currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Spot rates - forward rates - and swaps

34. What are the types of Exchange Rate Fluctuations?
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
Spot rates - forward rates - and swaps
Forward exchange or spot exchange
Monetary and fiscal policies

35. What causes big mac prices to vary?
Measurement of past events
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
It helps them understand the influence of exchange rates on profitability of trade investment deals

36. What are the three ways of insuring against a Forex risk?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Spot rates - forward rates - and swaps
Establish central control and attempts to forecast future exchange rates

37. What are the important trading centers?
True
London - New York - Tokyo - and Singapore
Lead and lag strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

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

39. What is the purpose of not concentrating assets in countries?
Collecting & spending of money by the government
Forward exchange or spot exchange
Lead and lag strategies
Increase currency values and protect against increases in foreign prices of goods and services

40. What is the third thing that determines the forex rates?
Productivity and balance payments
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Spot rates and forward rates

41. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
Lead and lag strategies
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

42. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
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
Intervention currency (peg country currency)
True
Delay payables if currency is expected to depreciate

43. What is hedging?

44. What are the three different types of foreign exchange rate risks?
State driven recapitalization are now needed
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
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Transaction - translation and economic exposure

45. What is arbitrage?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Transportation costs - trade barriers - and not trade inputs such as rents or wages
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

46. 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
Delay collection of foreign currency receivables if currency is exception to appreciate
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
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

47. What is the nominal exchange rate?
Intervention currency (peg country currency)
Currency of one country can be exchanged for the currency of another country
Reserve currency
Spot rates - forward rates - and swaps

48. Burger economics!!! Why do we use it?
Firms future international earning power
Increase currency values and protect against increases in foreign prices of goods and services
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

49. What are some strategies for managing forex risk?
Establish central control and attempts to forecast future exchange rates
True
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

50. What are three factors that impact a country's future exchange rate movements?
Lead and lag strategies
Increase currency values and protect against increases in foreign prices of goods and services
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Inflation - interest rate - and market psychology