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. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
exchange one currency for another
1 share = 1/3 case
15 months in advance - layering on hedges through time
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

2. What rate is used to book daily transactions?
Treasury Daily Spot Rate
Spot price
liquidity and cash
Indirect quote

3. EUR-USD currency pair accounts for about ____ of all FX volume
China - Malaysia - Colombia - Chile - Argentina
30%
1.60 - Because you can buy more dollars
The difference between hedge rate and final effective hedge rate

4. An ___________ expresses the value of one currency relative to another
APL rate
P&L activity
allow FX rate
exchange rate

5. The difference in interest rate is referred to as...
The calculation is the same - but instead of adding forward points you subtract
Forward Points
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Current market price - spot - plus or minus the difference between the interest rates of the two countries

6. What is local currency?

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7. GBP-USD account for ____ of trading FX volume
Government regulation and cost of hedging
translation
12%
China - Malaysia - Colombia - Chile - Argentina

8. All other currency trading with USD accounts for ____ of FX volume
exchange rate
MXN - EUR - CHF
21%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

9. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
direct
What is happening
strengthens
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

10. The current market price for any currency pair is referred to as ?
1 unit
Spot price
5%
MXN - EUR - CHF

11. What is cash flow used for?
Used to hedge against variability in expected future cash flows
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
value
is getting bigger

12. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
foreign exchange forward contract
direct
financial strategy and financial policy

13. Where are revaluations done?
21%
lost
exchange one currency for another
Oracle

14. B/S rate is used for revaluation of foreign currency transaction to...
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
6 weeks prior to Q/E
functional currency
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

15. What are the exceptions to the ticker naming convention?
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
There are FOUR
MXN - EUR - CHF

16. Forward points is equal to...
fx forward
The currency of the primary economic environment in which the legal entity operates
5%
spot price x interest differential

17. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1 unit
13%
BRL
1.60 - Because you can buy more dollars

18. How do you read EUR-USD = 1.40
financial risk
less
This means 1 Euro measured against US Dollars is worth $1.40
fx forward

19. 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
APL rate
interest rate differential
foreign currency* rate
downward slope

20. 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?
15 months in advance - layering on hedges through time
300 billion
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1.40 - Because I would be able to buy more euros

21. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
financial strength
translation
interest rate differential
1 unit

22. What would happen if the US interest rate was bigger than Mexico?
less
The calculation is the same - but instead of adding forward points you subtract
Currency in which the entity reports results externally
Treasury Daily Spot Rate

23. Revaluation can be hedged - while ___________ cannot be hedged
translation
BS account balances
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
What is happening

24. ____________ is used for translation of foreign currency P&L to Reporting currency?
SFAS 52
12%
APL rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

25. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
functional currency
1.60 - Because you can buy more dollars
allow FX rate

26. What rate is used on the P&L?
valuable
Oracle
exchange rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

27. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
MXN - EUR - CHF
1USD

28. 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...
300 billion
average rate
BRL
is getting bigger

29. Direct quote- _____________=USD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
actual weighted average contract rate
foreign currency* rate
FX policy

30. The currency ticker for the Sweden Kroner is?
valuable
currency options and forward
Government regulation and cost of hedging
SEK

31. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
exchange rate
F&O account 87503
Used to hedge against variability in expected future cash flows
strengthens

32. What instruments do we use to hedge?
interest rate differential
value
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Forward contracts and Options

33. What is Fair Value hedge program used for?
fx forward
1 Case = 2 pizzas
functional currency
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

34. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
SFAS 52
adverse fluctuations
SEK
90%

35. If 1 pizza = 15 USD then ____ = 1/15 pizza
SEK
1USD
strengthens
30%

36. What rate is used on the balance sheet?
15 months in advance - layering on hedges through time
exchange one currency for another
APL rate
End of Period Rate (SCO-4 rate)

37. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
functional currency
Spot price
more

38. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
adverse fluctuations
3 business days and beyond
three digit ticker symbol ex: USD - United States Dollar

39. 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?
financial strength
adverse fluctuations
F&O account 87503
5%

40. Australian currency code is...
The currency of the primary economic environment in which the legal entity operates
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
AUD
foreign currency* rate

41. How is the hedge rate variance calculated?
1.60 - Because you can buy more dollars
The difference between hedge rate and final effective hedge rate
direct
translation

42. A Spot happens in...
interest rate differential
BRL
financial strength
two business days

43. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
13%
15 months in advance - layering on hedges through time
foreign exchange forward contract
300 billion

44. How does treasury accomplish its purpose?
interest rate differential
Government regulation and cost of hedging
13%
Mitigates risks by using hedging techniques

45. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
FX policy
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

46. When is hedge rate published?
6 weeks prior to Q/E
1.60 - Because you can buy more dollars
exchange one currency for another
The calculation is the same - but instead of adding forward points you subtract

47. What is the ticker symbol for Brazilian Real?
British Pound - Australian Dollar - New Zealand Dollar - Euro
BRL
MXN - EUR - CHF
interest rate differential

48. 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
Government regulation and cost of hedging
Pound strengthens
Currency in which the entity reports results externally
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

49. What dictates minimum and maximum hedge percentages?
China - Malaysia - Colombia - Chile - Argentina
F&O account 87503
FX policy
1 unit

50. What is reporting currency?
Currency in which the entity reports results externally
AUD
13%
British Pound - Australian Dollar - New Zealand Dollar - Euro