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Foreign Exchange Market

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
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 implications does understanding foreign exchange rates have on managers?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
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
It helps them understand the influence of exchange rates on profitability of trade investment deals
agreed upon austerity

2. What is the first characteristic of lead strategy?
Delay payables if currency is expected to depreciate
Establish central control and attempts to forecast future exchange rates
An attempt to collect currency receivables early as result of expected depreciation
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

3. What is the second role of the U.S. dollar outside the U.S. ?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Intervention currency (peg country currency)
State driven recapitalization are now needed
Collecting & spending of money by the government

4. 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
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Measurement of past events
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

5. What is economic exposure?
London - New York - Tokyo - and Singapore
u.s. dollar
Firms future international earning power
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

6. It is important to stay __________ with your current events
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates - forward rates - and swaps
up to date

7. 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.
True
Reserve currency
Measurement of past events

8. What are some characteristics of swaps?
up to date
Lending of funds in foreign currencies
Control the amount of money in circulation - enforced by government policies - focus on growth rate
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

9. What is the third role of the U.S. dollar outside the U.S.?
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
Reserve currency
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
True

10. Greece has not defaulted because it has not been able to fully implement its...
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

11. What is the first characteristic of transaction exposure ?
State driven recapitalization are now needed
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
Affected by fluctuation in foreign exchange values
24/7

12. What is the second issue with EFSF?
Goods and services of one country can be exchanged for the goods and services 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
Transaction - translation and economic exposure
24/7

13. What is the characteristic of translation expose?
Inflation - interest rate - and market psychology
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Measurement of past events
Reserve currency

14. Defaulting on debt has a __________ that intertwines all countries in Europe.
Investor psychology
Affected by fluctuation in foreign exchange values
Inflation - interest rate - and market psychology
domino effect

15. In the long run empirical testing has of the PPP Theory has proven to be accurate in the long run. True or False
up to date
True
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

16. What are two methods of reducing translation and transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
Forward exchange or spot exchange
Lead and lag strategies

17. What is the first characteristic of lag strategy?
State driven recapitalization are now needed
Delay collection of foreign currency receivables if currency is exception to appreciate
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Transportation costs - trade barriers - and not trade inputs such as rents or wages

18. What is the nature of the forex market?
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
Exchange rates are determined by the demand and supply for different currencies
Group of investors movement in the same direction and same time or government intervention
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

19. How can translation exposure be described?
up to date
Impact of currency exchange rate changes on reported financial statements
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

20. What are the purposes of fiscal policies?
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
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
Collecting & spending of money by the government

21. What is the bandwagon effect when looking at form investor psychology ?
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
Group of investors movement in the same direction and same time or government intervention
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

22. What is a spot rate?
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
Reserve currency
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

23. What is a currency swamp?
Transaction - translation and economic exposure
Spot rates - forward rates - and swaps
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Delay collection of foreign currency receivables if currency is exception to appreciate

24. What is the fifth thing that determines the forex rates?
Investor psychology
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no 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
True

25. How do you establish central control?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Inflation - interest rate - and market psychology
Firms future international earning power
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

26. When do countries use foreign exchange market?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Interest rates and money supply

27. What is non convertible currency?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Reserve currency
Exchange rates are determined by the demand and supply for different currencies

28. What is the fourth characteristic of transaction exposure?
Lending of funds in foreign currencies
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
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

29. What is externally convertible currency
Measurement of past events
Large number of individuals and cos exchange of domestic currencies for a foreign currency
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
Interest rates and money supply

30. According to economic theories of exchage rate determination?
Currency of one country can be exchanged for the currency of another country
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
Obligations for the purchase or sale of goods and services at previously agreed prices
Exchange rates are determined by the demand and supply for different currencies

31. Bailout Fund of EFSF - What is this shiz nitz?
Issue mo good loans so that profits from new business can eat away the losses form the bad
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Relative price differences and ppp

32. What are three factors that impact a country's future exchange rate movements?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Inflation - interest rate - and market psychology
1. distribute productive assets 2. ensure assets are not concentrated in countries
Borrowing of funds in foreign currency

33. What are the important trading centers?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Intervention currency (peg country currency)
Borrowing of funds in foreign currency
London - New York - Tokyo - and Singapore

34. What is arbitrage?
Obligations for the purchase or sale of goods and services at previously agreed prices
Intervention currency (peg country currency)
agreed upon austerity
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)

35. What is the second characteristic of lead strategy?
Spot rates - forward rates - and swaps
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Inflation - interest rate - and market psychology
Paying foreign currency payable before dues as a result expected currency appreciation

36. What is the purpose of not concentrating assets in countries?
Lead and lag strategies
up to date
Banks stability was measure at a 5% capital adequacy ratio
Increase currency values and protect against increases in foreign prices of goods and services

37. Burger economics!!! Why do we use it?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
up to date
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

38. What is free convertible currency?
An attempt to collect currency receivables early as result of expected depreciation
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
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Currency of one country can be exchanged for the currency of another country

39. What holds true to Purchase Power Parity Theory?
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
Delay collection of foreign currency receivables if currency is exception to appreciate
Affected by fluctuation in foreign exchange values
True

40. What are the types of Exchange Rate Fluctuations?
Delay payables if currency is expected to depreciate
Monetary and fiscal policies
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
Issue mo good loans so that profits from new business can eat away the losses form the bad

41. Marekts are open...
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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
Obligations for the purchase or sale of goods and services at previously agreed prices
24/7

42. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Issue mo good loans so that profits from new business can eat away the losses form the bad
Inflation - interest rate - and market psychology

43. What is the fourth roles of the U.S. dollar outside the U.S.?
Reserve currency
Impact of currency exchange rate changes on reported financial statements
Vehicle currency(transaction between 2 less commonly used 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

44. The euro faces risks fo recapitalization?
Lead and lag strategies
Banks stability was measure at a 5% capital adequacy ratio
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

45. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Forward exchange or spot exchange
Transaction - translation and economic exposure
Banks stability was measure at a 5% capital adequacy ratio

46. What are the three ways of insuring against a Forex risk?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Currency of one country can be exchanged for the currency of another country
Delay payables if currency is expected to depreciate
Spot rates - forward rates - and swaps

47. No single theory can explain explain the causes the value of currencies to change. True or False?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
True
Exchange rate policies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

48. What are other strategies for managing forex risk?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Paying foreign currency payable before dues as a result expected currency appreciation
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

49. What is the law of one price?
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
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Group of investors movement in the same direction and same time or government intervention

50. What is the second characteristic of transaction exposure?
Obligations for the purchase or sale of goods and services at previously agreed prices
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
Reserve currency