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. Give an example of one way to hedge a price increase in gas prices...
SEK
1USD
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
China - Malaysia - Colombia - Chile - Argentina

2. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
exchange rate
more
Forward contracts and Options
Effective Hedge rate

3. A forward happens in...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
3 business days and beyond
three digit ticker symbol ex: USD - United States Dollar
downward slope

4. The current market price for any currency pair is referred to as ?
exchange one currency for another
weakens
SEK
Spot price

5. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
allow FX rate
SEK
weakens
The difference between hedge rate and final effective hedge rate

6. What is currency Translation?

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7. What rate is used to book daily transactions?
Treasury Daily Spot Rate
Mitigates risks by using hedging techniques
downward slope
currency options and forward

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

9. EUR-USD currency pair accounts for about ____ of all FX volume
30%
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
foreign exchange forward contract
BS account balances

10. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
interest rate differential
exchange one currency for another
CNY
30%

11. Forward points multiply the exchange rate by the...
300 billion
interest rate differential
is getting bigger
12%

12. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
1 unit
actual weighted average contract rate
valuable
Government regulation and cost of hedging

13. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
Oracle
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

14. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
Forward Points
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
13%

15. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
value
weakens
Forward contracts and Options

16. What rate is used on the balance sheet?
12%
End of Period Rate (SCO-4 rate)
downward slope
Treasury Daily Spot Rate

17. In general EUR-USD is involved in roughly ___ of all FX volume
1.60 - Because you can buy more dollars
6 weeks prior to Q/E
The difference between hedge rate and final effective hedge rate
90%

18. 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
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Pound strengthens
End of Period Rate (SCO-4 rate)
FX policy

19. What does it mean to hedge?
actual weighted average contract rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
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

20. What rate is used on the P&L?
The calculation is the same - but instead of adding forward points you subtract
MXN - EUR - CHF
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
AUD

21. Treasury is responsible for managing companies funds and determining the firms'...
Pound strengthens
valuable
Oracle
financial strategy and financial policy

22. What is cash flow used for?
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
Spot price
1 Case = 2 pizzas
Used to hedge against variability in expected future cash flows

23. An ___________ expresses the value of one currency relative to another
Indirect quote
Treasury Daily Spot Rate
Mitigates risks by using hedging techniques
exchange rate

24. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
3 business days and beyond
largest - It is open 24 hours a day - except weekends
CNY

25. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
Effective Hedge rate
B/S rate
value

26. Hedging instrument used in cash flow program is...
liquidity and cash
6 weeks prior to Q/E
three digit ticker symbol ex: USD - United States Dollar
currency options and forward

27. All other currency trading with USD accounts for ____ of FX volume
1USD
21%
actual weighted average contract rate
weakens

28. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
less
Effective Hedge rate
functional currency
300 billion

29. How far in advance do we hedge?
directly or indirectly
Current market price - spot - plus or minus the difference between the interest rates of the two countries
90%
15 months in advance - layering on hedges through time

30. 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...
Indirect quote
functional currency
actual weighted average contract rate
is getting bigger

31. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
3 -210 billion (3 trillion)
is getting bigger
foreign exchange forward contract
Effective Hedge rate

32. What are some of the reason not hedge at all or partially hedge in a few countries?
adverse fluctuations
Government regulation and cost of hedging
downward slope
MXN - EUR - CHF

33. When is hedge rate published?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
spot price x interest differential
3 business days and beyond
6 weeks prior to Q/E

34. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
The calculation is the same - but instead of adding forward points you subtract
1.60 - Because you can buy more dollars
exchange rate
SFAS 52

35. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
is getting bigger
1 unit
an estimate of aggregate rate

36. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
What is happening
Oracle
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

37. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
largest - It is open 24 hours a day - except weekends
adverse fluctuations
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
an estimate of aggregate rate

38. A Spot happens in...
two business days
F&O account 87503
functional currency
Forward Points

39. 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
90%
allow FX rate
Currency in which the entity reports results externally
functional currency

40. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Oracle
lost
1USD
300 billion

41. The ticker symbol for the Chinese Yuan
financial strategy and financial policy
1.60 - Because you can buy more dollars
CNY
End of Period Rate (SCO-4 rate)

42. What dictates minimum and maximum hedge percentages?
FX policy
foreign exchange forward contract
1USD
Treasury Daily Spot Rate

43. What instruments do we use to hedge?
F&O account 87503
MXN - EUR - CHF
Forward contracts and Options
allow FX rate

44. Treasury is responsible for banking requirements - funding for the business and managing...
Treasury Daily Spot Rate
13%
downward slope
financial risk

45. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
spot price x interest differential
P&L activity
direct
AUD

46. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
weakens
Forward Points
valuable
three digit ticker symbol ex: USD - United States Dollar

47. Treasury's role is to identify risk - control to prevent erosion of...
BRL
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strength
financial risk

48. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
spot price x interest differential
3 business days and beyond
Currency of the respective operating unit's country
less

49. ____________ should be denominated in the currency they will either be paid or received in...
1.60 - Because you can buy more dollars
SFAS 52
The difference between hedge rate and final effective hedge rate
BS account balances

50. US Treasuries is the second highest trading volume accounting for...
foreign exchange forward contract
6 weeks prior to Q/E
300 billion
downward slope