03 - Market Foundation 3 - Infrastructure

Question 1

When does the forex market open and close in UK time

Answer 1

Opens 10pm Sunday night and closes 10pm Friday night

Question 2

FX rate goes down imports become ___________ and exports become ____________

Answer 2

Imports expensive, neg shock

Exports cheaper, pos shock

Question 3

FX rate goes up imports become ___________ and exports become ____________

Answer 3

Imports expensive, pos shock

Exports cheap, neg shock

Question 4

CFD or spread betting. You dont own asset, you own

Answer 4

Derivative contract

Question 5

Initial leverage

Answer 5

What you deposit in your account

Question 6

Variable leverage

Answer 6

Used as collateral on outstanding positions when using leverage

Question 7

Broker Incentives

Answer 7

Volume and size incentive (spread and commission)

Taking the other side incentive (OTC gain and finance turn)

Question 8

Money supply definition, M0

Answer 8

Notes and coins in circulation (outside federal reserve banks and vaults)

Question 9

Money supply definition, MB

Answer 9

Monetary base (or total currency)

Base from which other forms of money are created.

Most liquid measure of money supply.

M0 + notes and coins in vaults + fed reserve bank credit

Question 10

Money supply definition, M1

Answer 10

M0 + demand deposits + other checkable deposits + travellers checks.

Bank reserves not included

Question 11

Money supply definitions, M2

Answer 11

M1 + savings deposits + time deposits (less than $100k) + money market deposits

Key economic factor used to forecast inflation

Question 12

What is demand deposits

Answer 12

Funds held in checking accounts

Question 13

What is other checkable deposits

Answer 13

Demand deposits other than class checking accounts. I.e. checking or current accounts that pay interest and the depositor can write unlimited cheques on the account

Question 14

What is savings deposits

Answer 14

Accounts that pay interest but can not be used directly as money in the narrow sense

Question 15

Time / term deposits

Answer 15

Savings account locked for specific period of time. Interest paid at higher rate.

Question 16

Money market deposit account

Answer 16

High interest paying account, usually requiring a large deposit

Question 17

What is quantitative easing

Answer 17

Central bank buys financial assets, usually bonds, from its members banks to add liquidity to capital markets. This decreases yield (interest) to encourage spending and increasea the monetary base. Encourages loans.

Question 18

Interest rates - expansionary monetary policy

Answer 18

Stimulating economy. CB buying short term Gov bonds (injection) to lower short-term interest rates to encourage increase loans

Question 19

Interest rates - contractionary monetary policy

Answer 19

Deflate economy, CB selling short term Gov bonds (withdrawl) in order to raise short term interest rates, discourage banks, decreases loans

Question 20

When a CB is lowering interest rates and buying ST Gov bonds, they are known as

Answer 20

Dovish

Question 21

When a CB is increasing interest rates and selling ST Gov bonds, they are known as

Answer 21

Hawkish

Question 22

What happens to the exchange rate when interest rates fall

Answer 22

Lower exchange rate. Discourages capital from abroad flowing into a particular country (the favour high interest rates for investment)

Question 23

What happens to the exchange rate when interest rates increase?

Answer 23

Exchange rate goes higher. Encourages capital from abroad flowing into country (buying currency). Better investment

Question 24

Who are the speculative participants

Answer 24

Hedge funds, investment banks and retail traders (80% of market)

Question 25

Who are the non-speculative participants

Answer 25

Biz and corps, pension funds, central banks and government.

Question 26

What drives the fundamental moves in currencies (speculative or non-speculative)

Answer 26

Non-speculative.