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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 is a forward rate?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Establish central control and attempts to forecast future exchange rates

2. What are the types of Exchange Rate Fluctuations?
Monetary and fiscal policies
agreed upon austerity
Lending of funds in foreign currencies
Forward exchange or spot exchange

3. What is the purpose of not concentrating assets in countries?
State driven recapitalization are now needed
Forward exchange or spot exchange
Relative price differences and ppp
Increase currency values and protect against increases in foreign prices of goods and services

4. What is the fourth roles of the U.S. dollar outside the U.S.?
Vehicle currency(transaction between 2 less commonly used currencies)
Spot rates - forward rates - and swaps
domino effect
Control the amount of money in circulation - enforced by government policies - focus on growth rate

5. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
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
Transportation costs - trade barriers - and not trade inputs such as rents or wages
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs

6. What are the three different types of foreign exchange rate risks?
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
Transaction - translation and economic exposure
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

7. What causes big mac prices to vary?
London - New York - Tokyo - and Singapore
Exchange rate policies
Transportation costs - trade barriers - and not trade inputs such as rents or wages
up to date

8. What implications does understanding foreign exchange rates have on managers?
Borrowing of funds in foreign currency
Collecting & spending of money by the government
Transportation costs - trade barriers - and not trade inputs such as rents or wages
It helps them understand the influence of exchange rates on profitability of trade investment deals

9. What is arbitrage?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Goods and services of one country can be exchanged for the goods and services of another country
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency

10. 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
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
Banks stability was measure at a 5% capital adequacy ratio
Delay collection of foreign currency receivables if currency is exception to appreciate

11. Most Transaction inovolve...
Goods and services of one country can be exchanged for the goods and services of another country
u.s. dollar
Banks stability was measure at a 5% capital adequacy ratio
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP

12. How can transaction exposure be described?
Firms future international earning power
Monetary and fiscal policies
The income form individual transacations
Paying foreign currency payable before dues as a result expected currency appreciation

13. What is the second issue with EFSF?
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
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
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

14. What is externally convertible currency
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. distribute productive assets 2. ensure assets are not concentrated in countries
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days

15. How can translation exposure be described?
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Exchange rate policies
Increase their exposure to banking -'s banking center

16. What are the first two things that determine Forex 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
Relative price differences and ppp
Reserve currency
True

17. What is free convertible currency?
24/7
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Interest rates and money supply
up to date

18. What is a spot rate?
Impact of currency exchange rate changes on reported financial statements
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
domino effect
Exchange rate policies

19. What are the two ways to reduce economic exposure?
Borrowing of funds in foreign currency
1. distribute productive assets 2. ensure assets are not concentrated in countries
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
Delay payables if currency is expected to depreciate

20. What is the fourth thing that determines the forex rates?
Affected by fluctuation in foreign exchange values
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Exchange rate policies

21. What are the important trading centers?
Issue mo good loans so that profits from new business can eat away the losses form the bad
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore

22. What is the first characteristic of lead strategy?
Lending of funds in foreign currencies
Intervention currency (peg country currency)
Transaction - translation and economic exposure
An attempt to collect currency receivables early as result of expected depreciation

23. According to economic theories of exchage rate determination?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rates are determined by the demand and supply for different currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure

24. What is a currency swamp?
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Establish central control and attempts to forecast future exchange rates

25. What is the fifth thing that determines the forex rates?
Vehicle currency(transaction between 2 less commonly used currencies)
Investor psychology
Transaction - translation and economic exposure
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

26. What is the third thing that determines the forex rates?
It helps them understand the influence of exchange rates on profitability of trade investment deals
Productivity and balance payments
A common reference
agreed upon austerity

27. What are some factors that influence exchange rates?
Delay collection of foreign currency receivables if currency is exception to appreciate
Borrowing of funds in foreign currency
Lending of funds in foreign currencies
Supply & demand of the currency -Interest rates -Inflation -Investor expectations

28. It is important to stay __________ with your current events
Lending of funds in foreign currencies
Spot rates and forward rates
A common reference
up to date

29. What is economic exposure?
Collecting & spending of money by the government
Firms future international earning power
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
Intervention currency (peg country currency)

30. What is the second characteristic of lead strategy?
Paying foreign currency payable before dues as a result expected currency appreciation
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
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
The income form individual transacations

31. What is the second role of the U.S. dollar outside the U.S. ?
Banks stability was measure at a 5% capital adequacy ratio
Intervention currency (peg country currency)
24/7
Paying foreign currency payable before dues as a result expected currency appreciation

32. What are some strategies for managing forex risk?
Lead and lag strategies
Borrowing of funds in foreign currency
Forward exchange or spot exchange
Establish central control and attempts to forecast future exchange rates

33. When do countries use the foreign exchange market?
Spot rates and forward rates
Reserve currency
Exchange rate policies
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.

34. What is the second thing that determines the Forex rates?
Currency of one country can be exchanged for the currency of another country
u.s. dollar
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

35. 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
agreed upon austerity
Establish central control and attempts to forecast future exchange rates
Investor psychology

36. What do monetary policies do?
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Spot rates - forward rates - and swaps
It helps them understand the influence of exchange rates on profitability of trade investment deals
An attempt to collect currency receivables early as result of expected depreciation

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

38. When do countries use foreign exchange market?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
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
True
Exchange rates are determined by the demand and supply for different currencies

39. What is the real exchange rate?
Goods and services of one country can be exchanged for the goods and services of another country
up to date
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Delay collection of foreign currency receivables if currency is exception to appreciate

40. What are three factors that impact a country's future exchange rate movements?
Inflation - interest rate - and market psychology
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Vehicle currency(transaction between 2 less commonly used currencies)

41. What is the first characteristic of transaction 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
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
Affected by fluctuation in foreign exchange values

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. distribute productive assets 2. ensure assets are not concentrated in countries
24/7
True
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

43. What are some characteristics of swaps?
Group of investors movement in the same direction and same time or government intervention
A common reference
True
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

44. 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
Intervention currency (peg country currency)
Productivity and balance payments
Measurement of past events

45. 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
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
Productivity and balance payments

46. How and What is the purpose of distributing assets?
A common reference
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs
agreed upon austerity

47. What is non convertible currency?
Increase currency values and protect against increases in foreign prices of goods and services
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates

48. How do you establish central control?
Vehicle currency(transaction between 2 less commonly used currencies)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Exchange rates are determined by the demand and supply for different currencies
1. protect resources efficiently 2. ensure correct mix of tactics and strategies

49. What is the characteristic of translation expose?
Measurement of past events
Supply & demand of the currency -Interest rates -Inflation -Investor expectations
State driven recapitalization are now needed
Transaction - translation and economic exposure

50. What is the nominal exchange rate?
Banks stability was measure at a 5% capital adequacy ratio
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
Currency of one country can be exchanged for the currency of another country
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs