Forex Trading Quiz - Test Your Basic Forex Fundamentals Knowledge - Page 2

silviston · #11 (**permalink**) 05-19-2008, 02:25 AM

Hey Dave,

Thanks for your good work, i would like to thank you for your effort and time in building this resource site.

Here are my takes

1. lower interest rates
2. increase interest rates
3. The currency would increase in value
4. The currency would decrease in value
5. The deficit would increase and currency would decrease
6. The deficit would decrease and the currency would increase
7. The currency would increase in value
8. CAD would increase, JPY would decrease
9. Consumer spending accounts for good part of US economy (Effect on GDP)
10. Major Industry sector - Service
Economy - Capitalist

Cheers,
Silviston

David Waring · #12 (**permalink**) 05-19-2008, 11:10 AM

Quote:

Originally Posted by ATB1

1. If inflation is low and a Central Bank is concerned about recession, what would the expected monetary policy response be?

A:1 If inflation is low and the economy is scared of a recession, central banks are expected to decerease interest rates.

2. If inflation and growth are both high what would the expected monetary policy response be?

A:2 it is expected that the central banks will increase interest rates to maintain inflation.

3. If a central bank raises interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?

A:3 If interest rates rise then the currency of that currency rises as well as well as the foreign investors.

4. If a central bank lowers interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?

A:4 it would affected the currency negetivly the value of that currency would fall and and foreign investors would leave to find better opportunities elsewhere.

5. If a country's imports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?

A:5 if imports grow then the value of the currency falls, because of deficit in the current account of that country

6. If a country's exports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?

A:6 If a countries exports grow then it would affect the value of the currency positivly and the value would rise,in the currount account the outcome would be positive because exports have grown over imports.

7. If a country is a major exporter of gold and the price of gold moves up by 50% over the course of a year, what would be the expected affect if any on that country's currency all else being equal?

A:7 The affect on the countries currency value is that it would rise since their an exporter of gold over that period of time.

8. Japan is a major importer of oil and Canada is a major exporter of oil. If the price of oil goes up by 50% over the course of a year, then what affect if any should this have on the CAD/JPY currency pair all else being equal?

A:8 The effect on the CAD/JPY would be a rise for the CAD and a fall for the JPY since there would be a deficit in their account would cause them to fall. On the other hand the CAD would rise since their an exporter of oil.

9. Traders who follow US Dollar fundamentals pay particular attention to any numbers which reflect the overall health of the consumer. Why?

A:9 since there a very high rate for health insuarance in the US the tax payed to the goverment would increase or decrease since health insuarence is a must for every citizen.That would either affect the GDP positivly or negetivly depending on the results and since GDP and since it is very important the to the fundemental investors they are expected to pay special attention to it.

10. The US Economy in the past was referred to as an Industrial Economy, now it is referred to more as a ________________ Economy.

A:10 high tech

Hi ATB1,

Thanks for the reply and for participating in the quiz. It seems that you are picking things up nicely here as most of your answers are correct. There were a couple of mistakes however which I have outlined below:

1. Correct Answer - decrease in rates expected to try and spur growth
2. Correct - increase in rates expected to reign in inflation
3. Correct - currency should strengthen as more foreign capital flows in.
4. Correct - currency should weaken as more capital flows out.
5. Almost Correct - you are correct that the currency should weaken and you are correct that the current account balance should decrease however the current account does not necessarily have to be in deficit in this scenario it could simply become less positive.
6. Correct - the currency should strengthen and the current account should increase
7. Correct - the value of their currency should rise
8. Correct - the rate for CAD/JPY should increase as the Canadian Dollar strengthens and the Japanese Yen Weakens
9. Incorrect - In finance when people refer to the "health of the US consumer" they are speaking about things like consumer spending, employment, etc. The reason why this is so Important is because consumer spending makes up over 2/3rds of GDP.
10. Almost Correct - The US is also a High Tech economy but the main title that is used to describe the US Economy is Service based.

Thanks again for participating in the quiz it seems that you have a good grasp on the overall concepts and are ready to move forward.

Best Regards,
Dave

David Waring · #13 (**permalink**) 05-19-2008, 11:18 AM

Quote:

Originally Posted by lezhek

1) lower interest
2) raze interest
3) more foreign investors
4) less foreign investors
5) deficit grows, currency depreciates
6) more money in current account, currency appreciates
7) currency appreciates
8) CAD currency appreciates
9) US economy is supported by consumer spending
10) service based

Hi Lezhek,

Thanks for the reply and for participating in the quiz. It seems that you are picking things up nicely as well.

1. Correct Answer - decrease in rates expected to try and spur growth
2. Correct - increase in rates expected to reign in inflation
3. Almost Correct - You are correct that this should increase foreign capital flows however the affect of this is the answer that I am looking for here which is that the currency should strengthen as more foreign capital flows in.
4. Almost Correct - You are correct that this should decrease foreign capital flows however the affect of this is the answer that I am looking for here which is that the currency should weaken as more capital flows out.
5. Almost Correct - You are correct that the currency should weaken and that the current account will decrease in size however it does not have to be in deficit it can simply become less positive.
6. Correct - currency should strengthen and the current account should increase
7. Correct - the value of their currency should rise
8. Half Correct - The CAD will strengthen however the JPY will also weaken which should send the rate for the CAD/JPY higher.
9. Correct - over 2/3rds of the US Economy is consumer spending.
10. Correct - The US Has a Service Based Economy.

Thanks again for participating I think you are ready to move forward as well.

Best Regards,
Dave

David Waring · #14 (**permalink**) 05-19-2008, 11:25 AM

Quote:

Originally Posted by rocketman7

1. The central bank would lower interest rates
2. The central bank would increase interest rates
3. The currency would increase in value
4. The currency would decrease in value
5. The deficit would increase and currency would decrease
6. The deficit would decrease and the currency would increase
7. The currency would increase in value
8. CAD would increase, JPY would decrease
9. A healthier consumer spends more than an unhealthy one
10. Service

rocketman7

Hey Rocketman7,

Thanks for the reply and for participating it seems that you have a good handle on things here as well.

1. Correct - decrease in rates expected to try and spur growth
2. Correct - increase in rates expected to reign in inflation
3. Correct - currency should strengthen as more foreign capital flows in.
4. Correct - currency should weaken as more capital flows out.
5. Almost Correct - you are correct that the currency should weaken and you are correct that the current account balance should decrease however the current account does not necessarily have to be in deficit in this scenario it could simply become less positive.
6. Almost Correct - the currency should strengthen and the current account should increase, however this does not necessarily have to be from a deficit position.
7. Correct - the value of their currency should rise
8. Correct - the rate for CAD/JPY should increase as the Canadian Dollar strengthens and the Japanese Yen Weakens
9. Partially Correct - The answer that I am looking for here is that consumer spending makes up over 2/3rds of the US Economy.
10. Correct - The US is Service Based Economy.

Thanks again for participating it seems that you have a good handle on things as well and are ready to move forward.

Best Regards,
Dave

David Waring · #15 (**permalink**) 05-19-2008, 11:40 AM

Quote:

Originally Posted by Gaffa

1. If inflation is low and a Central Bank is concerned about recession, what would the expected monetary policy response be?
- Central Banks would lower interest rates to kick start the domestic economy by encouraging domestic investment. (Housing etc)

2. If inflation and growth are both high what would the expected monetary policy response be?
-Central Banks would raise interest rates to cool inflation.

3. If a central bank raises interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?
-The currency should rise as foreign investors look for a place to park there money

4. If a central bank lowers interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?
-The currency should fall as foreign investors look for better returns elsewhere

5. If a country's imports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?
-Rising Imports without rising exports would cause a trade deficit and the currency would suffer.

6. If a country's exports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?
-Rising exports without rising imports would cause a trade surplus and the currency would be stronger.

7. If a country is a major exporter of gold and the price of gold moves up by 50% over the course of a year, what would be the expected affect if any on that country's currency all else being equal?
-Mmm this one got me thinking... does price effect demand for this commodity.... ok I'll going against the grain here... the currency will FALL
(Gold confuses me because as I read once "all the Gold that has EVER been mined is still out there to be traded")

8. Japan is a major importer of oil and Canada is a major exporter of oil. If the price of oil goes up by 50% over the course of a year, then what affect if any should this have on the CAD/JPY currency pair all else being equal?
-Demand for oil is pretty consistent regardless of price.... Loonie to rise.

9. Traders who follow US Dollar fundamentals pay particular attention to any numbers which reflect the overall health of the consumer. Why?
-Consumer Confidence

10. The US Economy in the past was referred to as an Industrial Economy, now it is referred to more as a ______Service 79%__________ Economy.

Hi Gaffa,

Thanks for participating it seems that you have a good handle on things as well.

1. Correct Answer - decrease in rates expected to try and spur growth
2. Correct - increase in rates expected to reign in inflation
3. Correct - currency should strengthen as more foreign capital flows in.
4. Correct - currency should weaken as more capital flows out.
5. Almost Correct - you are correct that the currency should weaken and you are correct that the current account balance should decrease however a rise in imports without a change in exports does not necessarily cause a deficit. I could simply reduce a positive current account balance.
6. Partially Correct - You are correct that the currency should strengthen and the current account should increase, however a rise in exports without a change in imports will not necessarily create a surplus. It could simply make the deficit less negative.
7. Incorrect - I am actually impressed that you thought about the affect of the price rise on demand as this shows me that you are thinking about things on a high level. But in this instance the value of the currency should rise as demand drives the value of commodities like gold. This is actually why I put in the question "over a course of a year" because a spike in the price of gold over the short term could cause demand to drop and for that demand drop not to be reflected in the price of gold however this is very unlikely to be the case over the course of a year. If the price of gold goes up significantly over the course of a year as we are seeing now then this is more likely than not being driven by demand increases.

On the question of all the gold that has ever been mined is still out there to be traded if you would like to expand on that thought a little bit I would be happy to try and provide some insight but I am not sure what the thinking is on that one from just what you have said above.

8. Half Correct - the loonie should rise as more money flows into the country due to demand driven price increases over the long term however more money should also flow out of Japan as they have to pay more to import oil from other places. So yes the loonie will rise however the Yen will also fall meaning the rate for CAD/JPY should increase.
9. Partially Correct - Consumer confidence is one of the numbers that people pay attention to but the reason why this is so Important, and the answer that I am looking for on this one, is because consumer spending makes up over 2/3rds of GDP.
10. Correct - The US Economy is a Service Based Economy.

Thanks again for participating it seems that you have a really good handle on things as well and are ready to move forward.

Best Regards,
Dave

David Waring · #16 (**permalink**) 05-19-2008, 11:53 AM

Quote:

Originally Posted by silviston

Hey Dave,

Thanks for your good work, i would like to thank you for your effort and time in building this resource site.

Here are my takes

1. lower interest rates
2. increase interest rates
3. The currency would increase in value
4. The currency would decrease in value
5. The deficit would increase and currency would decrease
6. The deficit would decrease and the currency would increase
7. The currency would increase in value
8. CAD would increase, JPY would decrease
9. Consumer spending accounts for good part of US economy (Effect on GDP)
10. Major Industry sector - Service
Economy - Capitalist

Cheers,
Silviston

Hi Silviston,

Thanks for the comment I am glad you like the site and welcome to the community we are happy to have you.

Also thank you for participating it seems that you have a very good handle on things as well.

1. Correct - decrease in rates expected to try and spur growth
2. Correct - increase in rates expected to reign in inflation
3. Correct - currency should strengthen as more foreign capital flows in.
4. Correct - currency should weaken as more capital flows out.
5. Almost Correct - you are correct that the currency should weaken and you are correct that the current account balance should decrease however the current account does not necessarily have to be in deficit in this scenario it could simply become less positive.
6. Almost Correct - the currency should strengthen and the current account should increase however the current account does not have to be in deficit it can simply become more positive.
7. Correct - the value of their currency should rise
8. Correct - the rate for CAD/JPY should increase as the Canadian Dollar strengthens and the Japanese Yen Weakens
9. Correct - consumer spending makes up over 2/3rds of GDP.
10. Correct - the US Economy is a Service Based Economy.

Thanks for participating it seems like you are ready to move forward as well.

Best Regards,
Dave

David Waring · #17 (**permalink**) 05-19-2008, 11:56 AM

Thanks to all who participated in the quiz I think everyone should be very pleased with their knowledge up to this point as each person who responded seems to have a good grasp on the basics we have learned up to this point on the Fundamentals of forex trading.

As no one got the answers 100% correct however I still have a book to give away. So with this in mind what I am going to do is Private Message each of the people who have responded and ask them for their forcast on where the EUR/USD will be trading next Monday (May 26th) at 5pm NY time. The person who gets the closest will get the book.

Best Regards
Dave

#18 (**permalink**) 05-23-2008, 11:03 PM

That question caught me off guard. I didn't know that. I must have missed that. How would consumer health effect the value of the dollar? How is health measured? Sick days? Pharmaceutical profits? The amount they consume? Actually, I never knew health changed much. I guess the right question is how could health effect the current account. Could the answer be productivity? A larger GNP would tend to increase the current account and therefore the value of the dollar.

David Waring · #19 (**permalink**) 05-27-2008, 07:38 PM

Quote:

Originally Posted by bonajab

That question caught me off guard. I didn't know that. I must have missed that. How would consumer health effect the value of the dollar? How is health measured? Sick days? Pharmaceutical profits? The amount they consume? Actually, I never knew health changed much. I guess the right question is how could health effect the current account. Could the answer be productivity? A larger GNP would tend to increase the current account and therefore the value of the dollar.

Hi Bonajab,

I think the confusion here is that when people talk about the "health of the consumer" in the financial world they are not referring to their medical health. They are instead referring to how much they are spending and/or are expected to spend. So the "health of the consumer" is measured by things such as consumer spending, employment numbers, retail sales etc.

Hope that helps.

Best Regards,
Dave

kawola17 · #20 (**permalink**) 06-25-2008, 11:56 PM

Hello Dave,

Here are my answers:
1) Promote economic growth, by increasing money supply
2) Focus on price stability, by reducing money supply
3) Strengthens currency as investors would want to invest
4) Weakens currency as investors would look elsewhere for higher return
5) Decrease current account, weaken the currency
6) Increase current account, strengthen the currency
7) Strengthen the currency
8) Canadian currency strengthens, CAD/JPY will increase
9) Consumer spending makes up a large part of the US economy (GDP)
10) Service based economy

Thanks in advance.

Sincerely,
Bill

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