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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. What is reporting currency?
interest rate differential
Currency in which the entity reports results externally
lost
The currency of the primary economic environment in which the legal entity operates

2. Forward points multiply the exchange rate by the...
Forward Points
interest rate differential
12%
exchange one currency for another

3. How is the hedge rate variance calculated?
AUD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
The difference between hedge rate and final effective hedge rate
15 months in advance - layering on hedges through time

4. Forward points is equal to...
more
spot price x interest differential
F&O account 87503
financial strength

5. How is the price of the forward contract determined?
1 share = 1/3 case
Current market price - spot - plus or minus the difference between the interest rates of the two countries
FX policy
1 Case = 2 pizzas

6. Treasury ensures that companies have ____________ to meet its obligations
foreign exchange forward contract
1 unit
strengthens
liquidity and cash

7. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
SFAS 52
6 weeks prior to Q/E
lost
more

8. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
13%
exchange one currency for another
Effective Hedge rate

9. A forward happens in...
SEK
3 business days and beyond
End of Period Rate (SCO-4 rate)
British Pound - Australian Dollar - New Zealand Dollar - Euro

10. What is cash flow used for?
1 share = 1/3 case
12%
Used to hedge against variability in expected future cash flows
direct

11. The current market price for any currency pair is referred to as ?
British Pound - Australian Dollar - New Zealand Dollar - Euro
APL rate
Spot price
The currency of the primary economic environment in which the legal entity operates

12. What would happen if the US interest rate was bigger than Mexico?
5%
Currency of the respective operating unit's country
British Pound - Australian Dollar - New Zealand Dollar - Euro
The calculation is the same - but instead of adding forward points you subtract

13. What does it mean to hedge?
BS account balances
exchange one currency for another
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1USD

14. How do you read EUR-USD = 1.40
fx forward
This means 1 Euro measured against US Dollars is worth $1.40
30%
average rate

15. USD-JPY account for ____ of trading FX volume
1USD
1 unit
13%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

16. A Spot happens in...
Treasury Daily Spot Rate
two business days
three digit ticker symbol ex: USD - United States Dollar
6 weeks prior to Q/E

17. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Forward contracts and Options
SFAS 52
30%

18. Hedging instrument used in cash flow program is...
currency options and forward
actual weighted average contract rate
Mitigates risks by using hedging techniques
Effective Hedge rate

19. What are monetary accounts?
B/S rate
BS account balances
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

20. Direct quote- _____________=USD
average rate
strengthens
foreign currency* rate
directly or indirectly

21. B/S rate is used for revaluation of foreign currency transaction to...
Forward Points
fx forward
1 Case = 2 pizzas
functional currency

22. What is the ticker symbol for Brazilian Real?
spot price x interest differential
BRL
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
SFAS 52

23. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
This means 1 Euro measured against US Dollars is worth $1.40
The calculation is the same - but instead of adding forward points you subtract
lost
value

24. What currencies use Direct method of quoting?
translation
British Pound - Australian Dollar - New Zealand Dollar - Euro
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
liquidity and cash

25. What is Functional Currency?
Currency in which the entity reports results externally
6 weeks prior to Q/E
less
The currency of the primary economic environment in which the legal entity operates

26. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
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
lost
China - Malaysia - Colombia - Chile - Argentina

27. What is the trading in volume for FX?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
actual weighted average contract rate
3 -210 billion (3 trillion)
fx forward

28. In general EUR-USD is involved in roughly ___ of all FX volume
90%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Government regulation and cost of hedging
fx forward

29. 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...
less
Pound strengthens
translation
is getting bigger

30. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
BRL
1USD
two business days

31. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1 share = 1/3 case
Current market price - spot - plus or minus the difference between the interest rates of the two countries
actual weighted average contract rate

32. What rate is used to book daily transactions?
Treasury Daily Spot Rate
actual weighted average contract rate
90%
an estimate of aggregate rate

33. 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
Pound strengthens
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Used to hedge against variability in expected future cash flows
Currency in which the entity reports results externally

34. 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?
300 billion
Effective Hedge rate
5%
Treasury Daily Spot Rate

35. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
1USD
direct
5%
less

36. Where are revaluations done?
1 Case = 2 pizzas
Oracle
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
21%

37. The Foreign Exchange market is the __________ market in the world
financial risk
largest - It is open 24 hours a day - except weekends
1.60 - Because you can buy more dollars
interest rate differential

38. The timing of when we execute hedges drastically impacts the ____________ we achieve
P&L activity
Treasury Daily Spot Rate
SFAS 52
average rate

39. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
average rate
Government regulation and cost of hedging
There are FOUR

40. ____________ is used for translation of foreign currency P&L to Reporting currency?
foreign exchange forward contract
currency options and forward
What is happening
APL rate

41. Give some examples of countries where its hard to hedge?
financial risk
21%
6 weeks prior to Q/E
China - Malaysia - Colombia - Chile - Argentina

42. What is Revaluation?

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43. Treasury is responsible for banking requirements - funding for the business and managing...
valuable
1.40 - Because I would be able to buy more euros
1 share = 1/3 case
financial risk

44. What is the purpose of hedging?
13%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
MXN - EUR - CHF
adverse fluctuations

45. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
fx forward
translation
1 share = 1/3 case

46. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
6 weeks prior to Q/E
21%
FX policy

47. If 1 pizza = 15 USD then ____ = 1/15 pizza
functional currency
1.40 - Because I would be able to buy more euros
1USD
13%

48. What instruments do we use to hedge?
Forward contracts and Options
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
CNY
What is happening

49. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
valuable
lost
AUD
spot price x interest differential

50. What rate is used on the balance sheet?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
End of Period Rate (SCO-4 rate)
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SEK