Test your basic knowledge |

Foreign Exchange Essentials

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 the ticker symbol for Brazilian Real?
APL rate
BRL
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Used to hedge against variability in expected future cash flows

2. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Mitigates risks by using hedging techniques
12%
APL rate
foreign exchange forward contract

3. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
an estimate of aggregate rate
APL rate
B/S rate
three digit ticker symbol ex: USD - United States Dollar

4. In a USD-JPY relationship - when the line in a graph is upward slope it means the yen is weakening and dollar is strenghtening because exchange rate...
is getting bigger
SFAS 52
F&O account 87503
Treasury Daily Spot Rate

5. What currencies use Direct method of quoting?
3 business days and beyond
British Pound - Australian Dollar - New Zealand Dollar - Euro
two business days
downward slope

6. EUR-USD currency pair accounts for about ____ of all FX volume
direct
Indirect quote
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
30%

7. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
foreign exchange forward contract
Pound strengthens
spot price x interest differential

8. What are the four major FX accounting guidances?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Oracle
financial strategy and financial policy
Effective Hedge rate

9. In a GBP-USD relationship - when the line in a graph is upward slope it means the __________ overtime because the exchange rate is getting bigger
largest - It is open 24 hours a day - except weekends
foreign currency* rate
Pound strengthens
12%

10. The timing of when we execute hedges drastically impacts the ____________ we achieve
5%
actual weighted average contract rate
average rate
largest - It is open 24 hours a day - except weekends

11. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Pound strengthens
China - Malaysia - Colombia - Chile - Argentina
valuable
Treasury Daily Spot Rate

12. USD-JPY account for ____ of trading FX volume
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
13%

13. Treasury is responsible for managing companies funds and determining the firms'...
Process to revalue the monetary BS accounts from: entered rate to B/S rate - prior month's B/S rate to current month's BS rates
more
Currency of the respective operating unit's country
financial strategy and financial policy

14. Forward points multiply the exchange rate by the...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Government regulation and cost of hedging
1 Case = 2 pizzas
interest rate differential

15. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
average rate
allow FX rate
1 share = 1/3 case
APL rate

16. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
translation
lost
300 billion
valuable

17. How many currencies use Direct method of quoting?
F&O account 87503
13%
This means 1 Euro measured against US Dollars is worth $1.40
There are FOUR

18. ____________ should be denominated in the currency they will either be paid or received in...
liquidity and cash
fx forward
BS account balances
End of Period Rate (SCO-4 rate)

19. Hedging instrument used in cash flow program is...
currency options and forward
Forward contracts and Options
China - Malaysia - Colombia - Chile - Argentina
Forward Points

20. The ticker symbol for the Chinese Yuan
CNY
1 Case = 2 pizzas
Spot price
P&L activity

21. Revaluation can be hedged - while ___________ cannot be hedged
Spot price
Oracle
translation
3 business days and beyond

22. What rate is used on the balance sheet?
BRL
End of Period Rate (SCO-4 rate)
foreign exchange forward contract
strengthens

23. If 1 pizza = 15 USD then ____ = 1/15 pizza
6 weeks prior to Q/E
1USD
China - Malaysia - Colombia - Chile - Argentina
Pound strengthens

24. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
What is happening
currency options and forward
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

25. The offset of revaluation is recorded to...
F&O account 87503
more
interest rate differential
Forward contracts and Options

26. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
adverse fluctuations
12%
30%

27. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
SFAS 52
This means 1 Euro measured against US Dollars is worth $1.40
lost

28. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Indirect quote
an estimate of aggregate rate
actual weighted average contract rate
BRL

29. In a downward slope that represents USD-JPY relationship a _____________ means that if you bough Japanese Yen at point A you made money at point B
fx forward
downward slope
functional currency
less

30. What are non-monetary accounts?
90%
12%
13%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

31. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
The difference between hedge rate and final effective hedge rate
foreign currency* rate
What is happening
SFAS 52

32. What is reporting currency?
spot price x interest differential
300 billion
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Currency in which the entity reports results externally

33. ____________ - foreign currency/rate = USD
What is happening
Indirect quote
downward slope
liquidity and cash

34. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
Process to convert an entity's BS & P&L from the functional currency to the reporting currency - BS is translated at BS rate - P&L is translated at APL rate
average rate
liquidity and cash

35. How do you read EUR-USD = 1.40
End of Period Rate (SCO-4 rate)
This means 1 Euro measured against US Dollars is worth $1.40
APL rate
fx forward

36. What is cash flow used for?
three digit ticker symbol ex: USD - United States Dollar
6 weeks prior to Q/E
Used to hedge against variability in expected future cash flows
financial strategy and financial policy

37. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
The calculation is the same - but instead of adding forward points you subtract
value
adverse fluctuations
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

38. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
more
fx forward
1 unit

39. GBP-USD account for ____ of trading FX volume
12%
translation
Mitigates risks by using hedging techniques
Treasury Daily Spot Rate

40. If the Mexico rate is 5.25%/year and the US is 0.25%/year - What is the rate that would be used to calculate the forward rate?
Spot price
5%
China - Malaysia - Colombia - Chile - Argentina
21%

41. How far in advance do we hedge?
30%
Currency of the respective operating unit's country
less
15 months in advance - layering on hedges through time

42. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
exchange rate
strengthens
1.40 - Because I would be able to buy more euros
12%

43. What is the purpose of hedging?
The currency of the primary economic environment in which the legal entity operates
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
more
interest rate differential

44. B/S rate is used for revaluation of foreign currency transaction to...
strengthens
6 weeks prior to Q/E
financial strategy and financial policy
functional currency

45. __________ is used for translation of foreign currency B/S to reporting currency
lost
foreign exchange forward contract
B/S rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

46. Hedging instrument used in Fair Value Hedge program is...
The calculation is the same - but instead of adding forward points you subtract
strengthens
fx forward
15 months in advance - layering on hedges through time

47. In general EUR-USD is involved in roughly ___ of all FX volume
Pound strengthens
Used to hedge against variability in expected future cash flows
foreign exchange forward contract
90%

48. Australian currency code is...
There are FOUR
AUD
6 weeks prior to Q/E
largest - It is open 24 hours a day - except weekends

49. A forward happens in...
fx forward
adverse fluctuations
Currency in which the entity reports results externally
3 business days and beyond

50. When is hedge rate published?
spot price x interest differential
financial strength
6 weeks prior to Q/E
foreign exchange forward contract