Foreign Exchange Market

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. The euro faces risks fo recapitalization?
Banks stability was measure at a 5% capital adequacy ratio
The exchange rate between 2 currencies; delivery within two days (conversion on a particular day)
State driven recapitalization are now needed
Group of investors movement in the same direction and same time or government intervention


2. What is the second role of the U.S. dollar outside the U.S. ?
domino effect
Measurement of past events
Group of investors movement in the same direction and same time or government intervention
Intervention currency (peg country currency)


3. What is the second characteristic of transaction exposure?
A common reference
Obligations for the purchase or sale of goods and services at previously agreed prices
domino effect
Vehicle currency(transaction between 2 less commonly used currencies)


4. How do you insure or hedge against a Forex risk?
Spot rates and forward rates
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
Forward exchange or spot exchange


5. What is the purpose of not concentrating assets in countries?
Obligations for the purchase or sale of goods and services at previously agreed prices
Increase currency values and protect against increases in foreign prices of goods and services
24/7
domino effect


6. How and What is the purpose of distributing assets?
Investor psychology
Group of investors movement in the same direction and same time or government intervention
True
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates


7. What are the characteristics of economic exposure?
London - New York - Tokyo - and Singapore
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
Monetary and fiscal policies
Affected by changes in exchange rates aslo long term effect of changes in exchange rates on future prices - sales - and costs


8. What are the first two things that determine Forex rates?
Lending of funds in foreign currencies
Impact of currency exchange rate changes on reported financial statements
Exchange rates are determined by the demand and supply for different currencies
Relative price differences and ppp


9. What is externally convertible currency
Control the amount of money in circulation - enforced by government policies - focus on growth rate
Paying foreign currency payable before dues as a result expected currency appreciation
Lending of funds in foreign currencies
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency


10. What is the second issue with EFSF?
Banks stability was measure at a 5% capital adequacy ratio
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
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency


11. What is capital fight when looking at it form investor psychology?
Banks stability was measure at a 5% capital adequacy ratio
Large number of individuals and cos exchange of domestic currencies for a foreign currency
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
London - New York - Tokyo - and Singapore


12. How can translation exposure be described?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Impact of currency exchange rate changes on reported financial statements
24/7
Reserve currency


13. What is the second thing that determines the Forex rates?
Inflation - interest rate - and market psychology
Interest rates and money supply
Obligations for the purchase or sale of goods and services at previously agreed prices
Establish central control and attempts to forecast future exchange rates


14. What is the first characteristic of transaction exposure ?
Exchange rates are determined by the demand and supply for different currencies
Reserve currency
Affected by fluctuation in foreign exchange values
24/7


15. Most Transaction inovolve...
u.s. dollar
Transaction - translation and economic 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
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


16. According to economic theories of exchage rate determination?
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
Collecting & spending of money by the government
Exchange rates are determined by the demand and supply for different currencies


17. What are the important trading centers?
Vehicle currency(transaction between 2 less commonly used currencies)
London - New York - Tokyo - and Singapore
Large number of individuals and cos exchange of domestic currencies for a foreign currency
Exchange rate policies


18. What is the second characteristic of lead strategy?
Exchange rate policies
Establish central control and attempts to forecast future exchange rates
Paying foreign currency payable before dues as a result expected currency appreciation
up to date


19. What is the fourth characteristic of transaction exposure?
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
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


20. 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
Monetary and fiscal policies
Obligations for the purchase or sale of goods and services at previously agreed prices
Impact of currency exchange rate changes on reported financial statements


21. Burger economics!!! Why do we use it?
Goods and services of one country can be exchanged for the goods and services of another country
True
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
u.s. dollar


22. What is the nature of the forex market?
domino effect
Exchange rate 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
Delay collection of foreign currency receivables if currency is exception to appreciate


23. Currently margins require more cash reserves - What is the best method of doing this **** in the Euro Zone?
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Issue mo good loans so that profits from new business can eat away the losses form the bad
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


24. Bailout Fund of EFSF - What is this shiz nitz?
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Obligations for the purchase or sale of goods and services at previously agreed prices
London - New York - Tokyo - and Singapore


25. What is a forward rate?
Vehicle currency(transaction between 2 less commonly used currencies)
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.


26. What is the law of one price?
u.s. dollar
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
Lead and lag strategies
Inflation - interest rate - and market psychology


27. What are the three different types of foreign exchange rate risks?
domino effect
Lead and lag strategies
Transaction - translation and economic exposure
Investor psychology


28. When do countries use foreign exchange market?
Transportation costs - trade barriers - and not trade inputs such as rents or wages
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
Firms future international earning power
Vehicle currency(transaction between 2 less commonly used currencies)


29. What are the two ways to reduce economic exposure?
Estb. good reporting systems - check monthly foreign exchange reports and distinguish between transaction - economic and translation exposure
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
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


30. 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
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
Goods and services of one country can be exchanged for the goods and services of another country
Monetary and fiscal policies


31. Defaulting on debt has a __________ that intertwines all countries in Europe.
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
True
domino effect
Investor psychology


32. What are some factors that influence exchange rates?
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
Impact of currency exchange rate changes on reported financial statements
Supply & demand of the currency -Interest rates -Inflation -Investor expectations


33. What is the third characteristic of transaction exposure?
Borrowing of funds in foreign currency
A common reference
It is used to measure how far the nominal exchange rate deviate from the one that would create PPP
1. non residents can convert their holdings of domestic currency 2. residents are limited in some way to convert currency


34. What is the fourth roles of the U.S. dollar outside the U.S.?
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)
Vehicle currency(transaction between 2 less commonly used currencies)
Issue mo good loans so that profits from new business can eat away the losses form the bad


35. What is the fourth thing that determines the forex rates?
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Exchange rate policies
Paying foreign currency payable before dues as a result expected currency appreciation
Spot rates and forward rates


36. What is arbitrage?
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy (no risk)
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
Increase their exposure to banking -'s banking center
Delay payables if currency is expected to depreciate


37. When do countries use the foreign exchange market?
Increase currency values and protect against increases in foreign prices of goods and services
Distribute to various locatoij so firms long term financial well being is not severly affected by changes in exchange rates
1. receive payments for exports 2. receive income from FDI 3. Receive income from licensing agreements with foreign firms are in foreign currencies.
Forward exchange or spot exchange


38. What are three factors that impact a country's future exchange rate movements?
Manages the Greeks - the Irish - and Portuguese bailouts and has passed recent amendments to legally assit euro banks and govs
Lead and lag strategies
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps
Inflation - interest rate - and market psychology


39. Greece has not defaulted because it has not been able to fully implement its...
Investor psychology
agreed upon austerity
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
Productivity and balance payments


40. What are some characteristics of swaps?
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
1. protect resources efficiently 2. ensure correct mix of tactics and strategies
Goods and services of one country can be exchanged for the goods and services of another country


41. What is hedging?


42. What are two methods of reducing translation and transaction exposure?
up to date
Lead and lag strategies
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
Increase their exposure to banking -'s banking center


43. What is the third thing that determines the forex rates?
A common reference
It helps them understand the influence of exchange rates on profitability of trade investment deals
Productivity and balance payments
Supply & demand of the currency -Interest rates -Inflation -Investor expectations


44. What is the first characteristic of lead strategy?
Group of investors movement in the same direction and same time or government intervention
An attempt to collect currency receivables early as result of expected depreciation
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


45. What is free convertible currency?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
agreed upon austerity
Government allows both residents and non residents to purchase unlimited amounts of foreign currency with domestic currency
Investor psychology


46. Marekts are open...
It helps them understand the influence of exchange rates on profitability of trade investment deals
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)
24/7


47. What is the first issue with EFSF?
Forward exchange or spot exchange
True
Borrowing of funds in 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


48. What is the fifth thing that determines the forex rates?
The exchange rate between 2 currencies;future delievery in 30/60/90/180 days
u.s. dollar
Reserve currency
Investor psychology


49. What is a currency swamp?
Paying foreign currency payable before dues as a result expected currency appreciation
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
Investor psychology
24/7


50. How can transaction exposure be described?
Both residents and on residents are prohibited from converting their holdings of domestic currency into a foreign currency
The income form individual transacations
Exchange rates are determined by the demand and supply for different currencies
Impact of currency exchange rate changes on reported financial statements