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 rate is used on the balance sheet?
This means 1 Euro measured against US Dollars is worth $1.40
End of Period Rate (SCO-4 rate)
more
Government regulation and cost of hedging

2. A forward happens in...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
3 business days and beyond
exchange one currency for another
1 Case = 2 pizzas

3. All other currency trading with USD accounts for ____ of FX volume
21%
an estimate of aggregate rate
AUD
value

4. What does it mean to hedge?
CNY
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
financial strategy and financial policy

5. What would happen if the US interest rate was bigger than Mexico?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
3 -210 billion (3 trillion)
The calculation is the same - but instead of adding forward points you subtract
interest rate differential

6. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
The currency of the primary economic environment in which the legal entity operates
three digit ticker symbol ex: USD - United States Dollar
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
13%

7. The current market price for any currency pair is referred to as ?
foreign exchange forward contract
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Spot price
translation

8. The difference in interest rate is referred to as...
There are FOUR
30%
Forward Points
two business days

9. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
SFAS 52
Spot price
Oracle

10. An ___________ expresses the value of one currency relative to another
3 -210 billion (3 trillion)
F&O account 87503
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
exchange rate

11. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
1.40 - Because I would be able to buy more euros
Treasury Daily Spot Rate
What is happening

12. The currency ticker for the Sweden Kroner is?
SEK
This means 1 Euro measured against US Dollars is worth $1.40
directly or indirectly
FX policy

13. ____________ - foreign currency/rate = USD
spot price x interest differential
3 -210 billion (3 trillion)
Indirect quote
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

14. What are the exceptions to the ticker naming convention?
Spot price
MXN - EUR - CHF
Mitigates risks by using hedging techniques
P&L activity

15. When is hedge rate published?
3 business days and beyond
translation
value
6 weeks prior to Q/E

16. Hedging instrument used in Fair Value Hedge program is...
fx forward
average rate
weakens
Mitigates risks by using hedging techniques

17. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
Pound strengthens
1 unit
There are FOUR

18. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
1.40 - Because I would be able to buy more euros
valuable
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
value

19. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
translation
Government regulation and cost of hedging
three digit ticker symbol ex: USD - United States Dollar

20. What rate is used to book daily transactions?
Treasury Daily Spot Rate
is getting bigger
Oracle
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

21. The ticker symbol for the Chinese Yuan
F&O account 87503
What is happening
Mitigates risks by using hedging techniques
CNY

22. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
downward slope
SFAS 52
There are FOUR
currency options and forward

23. EUR-USD currency pair accounts for about ____ of all FX volume
3 -210 billion (3 trillion)
30%
China - Malaysia - Colombia - Chile - Argentina
interest rate differential

24. Forward points is equal to...
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
spot price x interest differential
average rate
There are FOUR

25. What rate is used on the P&L?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
B/S rate
foreign currency* rate
liquidity and cash

26. 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...
13%
is getting bigger
1 Case = 2 pizzas
BS account balances

27. What is Functional Currency?
3 business days and beyond
30%
The currency of the primary economic environment in which the legal entity operates
21%

28. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
financial strategy and financial policy
1USD
adverse fluctuations

29. USD-JPY account for ____ of trading FX volume
translation
13%
an estimate of aggregate rate
foreign currency* rate

30. If you are an American planning a trip to Europe - which exchange rate would you rather have to convert your US Dollars to Euro? 1.40 or 1.60?
1.40 - Because I would be able to buy more euros
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
foreign exchange forward contract
APL rate

31. What are non-monetary accounts?
5%
Pound strengthens
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
average rate

32. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Oracle
more
1USD
two business days

33. ____________ should be denominated in the currency they will either be paid or received in...
three digit ticker symbol ex: USD - United States Dollar
Pound strengthens
BS account balances
Government regulation and cost of hedging

34. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
FX policy
Treasury Daily Spot Rate
The difference between hedge rate and final effective hedge rate

35. GBP-USD account for ____ of trading FX volume
financial strength
12%
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
valuable

36. In general EUR-USD is involved in roughly ___ of all FX volume
financial risk
90%
translation
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

37. What is Fair Value hedge program used for?
3 -210 billion (3 trillion)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
lost
Indirect quote

38. What dictates minimum and maximum hedge percentages?
Indirect quote
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
FX policy
The difference between hedge rate and final effective hedge rate

39. Direct quote- _____________=USD
foreign currency* rate
1.60 - Because you can buy more dollars
CNY
1 share = 1/3 case

40. The timing of when we execute hedges drastically impacts the ____________ we achieve
direct
average rate
90%
FX policy

41. Hedging instrument used in cash flow program is...
FX policy
Current market price - spot - plus or minus the difference between the interest rates of the two countries
two business days
currency options and forward

42. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
less
lost
15 months in advance - layering on hedges through time
1.40 - Because I would be able to buy more euros

43. Revaluation can be hedged - while ___________ cannot be hedged
AUD
functional currency
lost
translation

44. If 1 pizza = 15 USD then ____ = 1/15 pizza
British Pound - Australian Dollar - New Zealand Dollar - Euro
F&O account 87503
downward slope
1USD

45. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign currency* rate
foreign exchange forward contract
currency options and forward
The currency of the primary economic environment in which the legal entity operates

46. The rules for adding or subtracting forward points depend on whether it is quoted...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
BS account balances
directly or indirectly
15 months in advance - layering on hedges through time

47. 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
two business days
Government regulation and cost of hedging
spot price x interest differential
Pound strengthens

48. What is the ticker symbol for Brazilian Real?
BRL
This means 1 Euro measured against US Dollars is worth $1.40
allow FX rate
AUD

49. A Spot happens in...
Forward Points
more
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
two business days

50. What is the trading in volume for FX?
3 -210 billion (3 trillion)
liquidity and cash
300 billion
FX policy