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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. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
Transaction - translation and economic exposure
Issue mo good loans so that profits from new business can eat away the losses form the bad
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
Lead and lag strategies

2. What is the first characteristic of lag strategy?
Delay collection of foreign currency receivables if currency is exception to appreciate
Spot rates and forward rates
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency

3. How do you establish central control?
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
Exchange rate policies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

4. What is the third thing that determines the forex rates?
domino effect
Productivity and balance payments
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Group of investors movement in the same direction and same time or government intervention

5. What are the first two things that determine Forex rates?
Group of investors movement in the same direction and same time or government intervention
Forward exchange or spot exchange
Relative price differences and ppp
Intervention currency (peg country currency)

6. What is the purpose of not concentrating assets in countries?
Impact of currency exchange rate changes on reported financial statements
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Increase currency values and protect against increases in foreign prices of goods and services

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

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8. What causes big mac prices to vary?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Delay payables if currency is expected to depreciate
24/7
Transportation costs - trade barriers - and not trade inputs such as rents or wages

9. What is the nominal exchange rate?
Measurement of past events
An attempt to collect currency receivables early as result of expected depreciation
Inflation - interest rate - and market psychology
Currency of one country can be exchanged for the currency of another country

10. What are other strategies for managing forex risk?
An attempt to collect currency receivables early as result of expected depreciation
Vehicle currency(transaction between 2 less commonly used currencies)
Banks stability was measure at a 5% capital adequacy ratio
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

11. What is the fourth characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Lending of funds in foreign currencies

12. What are the three ways of insuring against a Forex risk?
Affected by fluctuation in foreign exchange values
Spot rates - forward rates - and swaps
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
u.s. dollar

13. What is externally convertible currency
domino effect
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
u.s. dollar
True

14. What is the fifth thing that determines the forex rates?
Delay payables if currency is expected to depreciate
Relative price differences and ppp
Paying foreign currency payable before dues as a result expected currency appreciation
Investor psychology

15. What are some characteristics of swaps?
Transaction - translation and economic exposure
Establish central control and attempts to forecast future exchange 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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps

16. What is hedging?

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17. How and What is the purpose of distributing assets?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
Establish central control and attempts to forecast future exchange rates

18. What is the fourth roles of the U.S. dollar outside the U.S.?
The income form individual transacations
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
Intervention currency (peg country currency)
Vehicle currency(transaction between 2 less commonly used currencies)

19. What is the second 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
Impact of currency exchange rate changes on reported financial statements
Increase their exposure to banking -'s banking center

20. What holds true to Purchase Power Parity Theory?
Collecting & spending of money by the government
Spot rates and forward rates
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

21. What is the first characteristic of transaction exposure ?
Affected by fluctuation in foreign exchange values
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
Lending of funds in foreign currencies
Transaction - translation and economic exposure

22. What is the third role of the U.S. dollar outside the U.S.?
Reserve currency
Banks stability was measure at a 5% capital adequacy ratio
State driven recapitalization are now needed
Measurement of past events

23. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Intervention currency (peg country currency)
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
True

24. What is the bandwagon effect when looking at form investor psychology ?
Group of investors movement in the same direction and same time or government intervention
Exchange rates are determined by the demand and supply for different currencies
State driven recapitalization are now needed
Relative price differences and ppp

25. Defaulting on debt has a __________ that intertwines all countries in Europe.
Establish central control and attempts to forecast future exchange rates
State driven recapitalization are now needed
domino effect
Spot rates and forward rates

26. How can transaction exposure be described?
Collecting & spending of money by the government
Group of investors movement in the same direction and same time or government intervention
The income form individual transacations
Lending of funds in foreign currencies

27. What is the second role of the U.S. dollar outside the U.S. ?
agreed upon austerity
Vehicle currency(transaction between 2 less commonly used currencies)
Intervention currency (peg country currency)
Goods and services of one country can be exchanged for the goods and services of another country

28. 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
Forward exchange or spot exchange
State driven recapitalization are now needed
Exchange rates are determined by the demand and supply for different currencies

29. What is a currency swamp?
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Firms future international earning power
Relative price differences and ppp

30. The euro faces risks fo recapitalization?
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
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
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

31. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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

32. Because many banks (2/3) are below the capital adequacy ratio of 9% many can not recapitalize on their own as a result
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
Issue mo good loans so that profits from new business can eat away the losses form the bad
State driven recapitalization are now needed
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

33. What are some factors that influence exchange rates?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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)

34. What is economic exposure?
Firms future international earning power
Inflation - interest rate - and market psychology
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. 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

35. What is the first issue with EFSF?
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
Monetary and fiscal policies
It helps them understand the influence of exchange rates on profitability of trade investment deals
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

36. Bailout Fund of EFSF - What is this shiz nitz?
Exchange rate policies
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

37. What is a forward rate?
u.s. dollar
Exchange rate policies
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
London - New York - Tokyo - and Singapore

38. What is arbitrage?
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
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)
Borrowing of funds in foreign currency

39. What are two methods of reducing translation and transaction exposure?
A common reference
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
Lead and lag strategies
Monetary and fiscal policies

40. It is important to stay __________ with your current events
up to date
Delay payables if currency is expected to depreciate
Increase their exposure to banking -'s banking center
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

41. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
Goods and services of one country can be exchanged for the goods and services of another country
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

42. Burger economics!!! Why do we use it?
Borrowing of funds in 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
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

43. What is the second issue with EFSF?
24/7
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
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 their exposure to banking -'s banking center

44. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
Investor psychology
agreed upon austerity
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

45. According to economic theories of exchage rate determination?
Interest rates and money supply
Exchange rates are determined by the demand and supply for different currencies
Affected by fluctuation in foreign exchange values
Spot rates - forward rates - and swaps

46. Greece has not defaulted because it has not been able to fully implement its...
agreed upon austerity
Reserve currency
Measurement of past events
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

47. What are the two ways to reduce economic exposure?
Group of investors movement in the same direction and same time or government intervention
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
Interest rates and money supply
1. distribute productive assets 2. ensure assets are not concentrated in countries

48. How can translation exposure be described?
Intervention currency (peg country currency)
Impact of currency exchange rate changes on reported financial statements
Spot rates - forward rates - and swaps
Exchange rate policies

49. When do countries use foreign exchange market?
Affected by fluctuation in foreign exchange values
The income form individual transacations
Collecting & spending of money by the government
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

50. What is the characteristic of translation expose?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
u.s. dollar
Measurement of past events
Group of investors movement in the same direction and same time or government intervention