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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. EUR-USD currency pair accounts for about ____ of all FX volume
adverse fluctuations
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
1.40 - Because I would be able to buy more euros
30%

2. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
SEK
6 weeks prior to Q/E
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

3. What is currency Translation?

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4. What is the trading in volume for FX?
value
3 -210 billion (3 trillion)
functional currency
allow FX rate

5. GBP-USD account for ____ of trading FX volume
Government regulation and cost of hedging
APL rate
BS account balances
12%

6. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
more
financial strategy and financial policy
largest - It is open 24 hours a day - except weekends
an estimate of aggregate rate

7. A Spot happens in...
two business days
1 Case = 2 pizzas
translation
an estimate of aggregate rate

8. The difference in interest rate is referred to as...
Forward Points
value
translation
Spot price

9. What are non-monetary accounts?
China - Malaysia - Colombia - Chile - Argentina
Spot price
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Effective Hedge rate

10. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
1 Case = 2 pizzas
directly or indirectly
15 months in advance - layering on hedges through time
actual weighted average contract rate

11. What does it mean to hedge?
There are FOUR
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
China - Malaysia - Colombia - Chile - Argentina
1.40 - Because I would be able to buy more euros

12. The current market price for any currency pair is referred to as ?
three digit ticker symbol ex: USD - United States Dollar
Currency of the respective operating unit's country
Spot price
SFAS 52

13. 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
downward slope
Currency in which the entity reports results externally
spot price x interest differential
FX policy

14. Forward points is equal to...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Currency in which the entity reports results externally
spot price x interest differential
functional currency

15. How is the hedge rate variance calculated?
1 share = 1/3 case
The difference between hedge rate and final effective hedge rate
F&O account 87503
12%

16. The offset of revaluation is recorded to...
3 -210 billion (3 trillion)
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
F&O account 87503
1 Case = 2 pizzas

17. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
an estimate of aggregate rate
BS account balances
foreign exchange forward contract
SFAS 52

18. What is cash flow used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Used to hedge against variability in expected future cash flows
adverse fluctuations
P&L activity

19. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
1.60 - Because you can buy more dollars
Forward Points
average rate

20. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Forward Points
1 unit
MXN - EUR - CHF

21. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Forward Points
300 billion
The currency of the primary economic environment in which the legal entity operates

22. How is the price of the forward contract determined?
foreign exchange forward contract
3 -210 billion (3 trillion)
Current market price - spot - plus or minus the difference between the interest rates of the two countries
translation

23. What is reporting currency?
The calculation is the same - but instead of adding forward points you subtract
CNY
This means 1 Euro measured against US Dollars is worth $1.40
Currency in which the entity reports results externally

24. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
3 business days and beyond
The difference between hedge rate and final effective hedge rate
less
currency options and forward

25. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
lost
SFAS 52
downward slope
an estimate of aggregate rate

26. Hedging instrument used in Fair Value Hedge program is...
1 Case = 2 pizzas
fx forward
Currency of the respective operating unit's country
currency options and forward

27. Revaluation can be hedged - while ___________ cannot be hedged
1USD
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
translation
two business days

28. B/S rate is used for revaluation of foreign currency transaction to...
interest rate differential
FX policy
300 billion
functional currency

29. How many currencies use Direct method of quoting?
Used to hedge against variability in expected future cash flows
liquidity and cash
1 share = 1/3 case
There are FOUR

30. What rate is used to book daily transactions?
13%
Treasury Daily Spot Rate
FX policy
liquidity and cash

31. Treasury ensures that companies have ____________ to meet its obligations
interest rate differential
currency options and forward
Mitigates risks by using hedging techniques
liquidity and cash

32. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
two business days
1.60 - Because you can buy more dollars
direct

33. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
functional currency
allow FX rate
Forward Points
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

34. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
MXN - EUR - CHF
Used to hedge against variability in expected future cash flows
valuable
The calculation is the same - but instead of adding forward points you subtract

35. Treasury is responsible for banking requirements - funding for the business and managing...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
downward slope
financial risk
End of Period Rate (SCO-4 rate)

36. Where are revaluations done?
15 months in advance - layering on hedges through time
financial strategy and financial policy
allow FX rate
Oracle

37. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
12%
Pound strengthens
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

38. 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...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
1USD
is getting bigger
Oracle

39. The timing of when we execute hedges drastically impacts the ____________ we achieve
valuable
average rate
foreign exchange forward contract
1USD

40. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
6 weeks prior to Q/E
adverse fluctuations

41. If 1 pizza = 15 USD then ____ = 1/15 pizza
300 billion
1USD
is getting bigger
valuable

42. The ticker symbol for the Chinese Yuan
CNY
21%
adverse fluctuations
P&L activity

43. Give an example of one way to hedge a price increase in gas prices...
interest rate differential
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Mitigates risks by using hedging techniques
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

44. What is local currency?

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45. How far in advance do we hedge?
directly or indirectly
an estimate of aggregate rate
15 months in advance - layering on hedges through time
exchange rate

46. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
allow FX rate
direct
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
average rate

47. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
Forward Points
lost
value

48. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
direct
British Pound - Australian Dollar - New Zealand Dollar - Euro
1 share = 1/3 case
P&L activity

49. 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?
value
5%
Spot price
Forward contracts and Options

50. The Foreign Exchange market is the __________ market in the world
SFAS 52
largest - It is open 24 hours a day - except weekends
12%
exchange one currency for another