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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 is the second characteristic of lag strategy?
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
Reserve currency
Currency of one country can be exchanged for the currency of another country
Delay payables if currency is expected to depreciate

2. What are the three ways of insuring against a Forex risk?
Spot rates - forward rates - and swaps
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
Reserve currency
Increase their exposure to banking -'s banking center

3. Most Transaction inovolve...
u.s. dollar
Vehicle currency(transaction between 2 less commonly used currencies)
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

4. What is the first characteristic of lead strategy?
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
An attempt to collect currency receivables early as result of expected depreciation
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

5. 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
London - New York - Tokyo - and Singapore
The income form individual transacations
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

6. What is the first characteristic of transaction exposure ?
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
Borrowing of funds in foreign currency
Firms future international earning power

7. Bailout Fund of EFSF - What is this shiz nitz?
Spot rates - forward rates - and swaps
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
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
London - New York - Tokyo - and Singapore

8. What is a spot rate?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
An attempt to collect currency receivables early as result of expected depreciation
Relative price differences and ppp

9. What are the two ways to reduce economic exposure?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Firms future international earning power
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

10. When do countries use foreign exchange market?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Spot rates - forward rates - and swaps
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

11. What is the nominal exchange rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Lending of funds in foreign currencies
Currency of one country can be exchanged for the currency of another country

12. What is the nature of the forex market?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Vehicle currency(transaction between 2 less commonly used 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

13. What are the characteristics of economic exposure?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Spot rates - forward rates - and swaps
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Banks stability was measure at a 5% capital adequacy ratio

14. According to economic theories of exchage rate determination?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rates are determined by the demand and supply for different currencies
Intervention currency (peg country currency)
Large number of individuals and cos exchange of domestic currencies for a foreign currency

15. No single theory can explain explain the causes the value of currencies to change. True or False?
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
True
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

16. What is the bandwagon effect when looking at form investor psychology ?
Relative price differences and ppp
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
Group of investors movement in the same direction and same time or government intervention
Goods and services of one country can be exchanged for the goods and services of another country

17. What is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
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
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

18. What is hedging?

19. What is free convertible currency?
Reserve currency
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Exchange rate policies
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)

20. How can transaction exposure be described?
The income form individual transacations
Increase currency values and protect against increases in foreign prices of goods and services
agreed upon austerity
Goods and services of one country can be exchanged for the goods and services of another country

21. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
True
agreed upon austerity
Issue mo good loans so that profits from new business can eat away the losses form the bad
Increase their exposure to banking -'s banking center

22. What is a currency swamp?
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Group of investors movement in the same direction and same time or government intervention
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Goods and services of one country can be exchanged for the goods and services of another country

23. What is the second characteristic of transaction exposure?
domino effect
Obligations for the purchase or sale of goods and services at previously agreed prices
Interest rates and money supply
Goods and services of one country can be exchanged for the goods and services of another country

24. Defaulting on debt has a __________ that intertwines all countries in Europe.
Firms future international earning power
Reserve currency
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
domino effect

25. What are the first two things that determine Forex rates?
Relative price differences and ppp
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

26. What is the real exchange rate?
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
Productivity and balance payments
Reserve currency
Goods and services of one country can be exchanged for the goods and services of another country

27. What is the fourth characteristic of transaction exposure?
Forward exchange or spot exchange
Increase currency values and protect against increases in foreign prices of goods and services
Lending of funds in foreign currencies
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

28. What are the two ways to quote currency?
Exchange rate policies
Spot rates and forward rates
Affected by fluctuation in foreign exchange values
Reserve currency

29. What is the second issue with EFSF?
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
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
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

30. Burger economics!!! Why do we use it?
Currency of one country can be exchanged for the currency of another country
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

31. What are some strategies for managing forex risk?
Monetary and fiscal policies
Establish central control and attempts to forecast future exchange rates
Forward exchange or spot exchange
Issue mo good loans so that profits from new business can eat away the losses form the bad

32. 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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Lending of funds in foreign currencies
Increase currency values and protect against increases in foreign prices of goods and services

33. Marekts are open...
Exchange rates are determined by the demand and supply for different currencies
Currency of one country can be exchanged for the currency of another country
24/7
Delay collection of foreign currency receivables if currency is exception to appreciate

34. What is the third role of the U.S. dollar outside the U.S.?
Banks stability was measure at a 5% capital adequacy ratio
domino effect
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
Reserve currency

35. What is the second role of the U.S. dollar outside the U.S. ?
Intervention currency (peg country currency)
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
Banks stability was measure at a 5% capital adequacy ratio

36. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
Forward exchange or spot exchange
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
Intervention currency (peg country currency)

37. How do you insure or hedge against a Forex risk?
Forward exchange or spot exchange
Establish central control and attempts to forecast future exchange rates
London - New York - Tokyo - and Singapore
Productivity and balance payments

38. What is capital fight when looking at it form investor psychology?
Exchange rates are determined by the demand and supply for different 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
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

39. What are two methods of reducing translation and transaction exposure?
Measurement of past events
Lead and lag strategies
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. Greece has not defaulted because it has not been able to fully implement its...
Exchange rates are determined by the demand and supply for different currencies
agreed upon austerity
Increase their exposure to banking -'s banking center
It helps them understand the influence of exchange rates on profitability of trade investment deals

41. What is the first issue with EFSF?
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
Currency of one country can be exchanged for the currency of another country
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
Lending of funds in foreign currencies

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

43. How and What is the purpose of distributing assets?
Relative price differences and ppp
Banks stability was measure at a 5% capital adequacy ratio
Currency of one country can be exchanged for the currency of another country
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

44. What is the second characteristic of lead strategy?
Increase currency values and protect against increases in foreign prices of goods and services
Paying foreign currency payable before dues as a result expected currency appreciation
Relative price differences and ppp
Vehicle currency(transaction between 2 less commonly used currencies)

45. What are other strategies for managing forex risk?
Transaction - translation and economic exposure
London - New York - Tokyo - and Singapore
The income form individual transacations
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

46. What holds true to Purchase Power Parity Theory?
agreed upon austerity
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
Establish central control and attempts to forecast future exchange rates
Firms future international earning power

47. 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
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages

48. How can translation exposure be described?
True
An attempt to collect currency receivables early as result of expected depreciation
Productivity and balance payments
Impact of currency exchange rate changes on reported financial statements

49. What is the first roels of the U.S. dollar outside the U.S.?
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
A common reference
Goods and services of one country can be exchanged for the goods and services of another country

50. What is the third thing that determines the forex rates?
Productivity and balance payments
Monetary and fiscal policies
Spot rates - forward rates - and swaps
Investor psychology