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 is the trading in volume for FX?
12%
Effective Hedge rate
3 -210 billion (3 trillion)
Currency in which the entity reports results externally

2. What are the exceptions to the ticker naming convention?
downward slope
MXN - EUR - CHF
1.60 - Because you can buy more dollars
is getting bigger

3. 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
liquidity and cash
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
average rate

4. What is local currency?

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5. When is hedge rate published?
value
6 weeks prior to Q/E
an estimate of aggregate rate
allow FX rate

6. How is the hedge rate variance calculated?
is getting bigger
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
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
The difference between hedge rate and final effective hedge rate

7. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
Used to hedge against variability in expected future cash flows
APL rate
Spot price

8. What would happen if the US interest rate was bigger than Mexico?
two business days
The calculation is the same - but instead of adding forward points you subtract
Mitigates risks by using hedging techniques
3 -210 billion (3 trillion)

9. All other currency trading with USD accounts for ____ of FX volume
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strength
AUD
21%

10. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
SFAS 52
1.40 - Because I would be able to buy more euros
1.60 - Because you can buy more dollars

11. US Treasuries is the second highest trading volume accounting for...
15 months in advance - layering on hedges through time
90%
financial strategy and financial policy
300 billion

12. Revaluation can be hedged - while ___________ cannot be hedged
Spot price
BRL
translation
End of Period Rate (SCO-4 rate)

13. What is currency Translation?

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14. How do you read EUR-USD = 1.40
British Pound - Australian Dollar - New Zealand Dollar - Euro
This means 1 Euro measured against US Dollars is worth $1.40
is getting bigger
lost

15. Forward points multiply the exchange rate by the...
interest rate differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
British Pound - Australian Dollar - New Zealand Dollar - Euro

16. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
CNY
functional currency
30%

17. 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?
liquidity and cash
This means 1 Euro measured against US Dollars is worth $1.40
300 billion
1.40 - Because I would be able to buy more euros

18. What dictates minimum and maximum hedge percentages?
FX policy
financial risk
largest - It is open 24 hours a day - except weekends
translation

19. ____________ - foreign currency/rate = USD
Effective Hedge rate
Indirect quote
End of Period Rate (SCO-4 rate)
1.60 - Because you can buy more dollars

20. What instruments do we use to hedge?
spot price x interest differential
1.40 - Because I would be able to buy more euros
Forward contracts and Options
Indirect quote

21. What are monetary accounts?
allow FX rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Effective Hedge rate

22. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
fx forward
foreign exchange forward contract
This means 1 Euro measured against US Dollars is worth $1.40
Treasury Daily Spot Rate

23. 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...
valuable
Mitigates risks by using hedging techniques
6 weeks prior to Q/E
is getting bigger

24. How does treasury accomplish its purpose?
Indirect quote
interest rate differential
Mitigates risks by using hedging techniques
3 -210 billion (3 trillion)

25. USD-JPY account for ____ of trading FX volume
Used to hedge against variability in expected future cash flows
strengthens
MXN - EUR - CHF
13%

26. Give some examples of countries where its hard to hedge?
1USD
This means 1 Euro measured against US Dollars is worth $1.40
China - Malaysia - Colombia - Chile - Argentina
spot price x interest differential

27. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
financial strategy and financial policy
Government regulation and cost of hedging
adverse fluctuations

28. Treasury is responsible for banking requirements - funding for the business and managing...
functional currency
Used to hedge against variability in expected future cash flows
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial risk

29. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
6 weeks prior to Q/E
value
Current market price - spot - plus or minus the difference between the interest rates of the two countries

30. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
directly or indirectly
Effective Hedge rate
CNY

31. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
What is happening
21%
1 Case = 2 pizzas

32. An ___________ expresses the value of one currency relative to another
3 -210 billion (3 trillion)
strengthens
Currency of the respective operating unit's country
exchange rate

33. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
directly or indirectly
MXN - EUR - CHF
lost

34. Hedging instrument used in cash flow program is...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
currency options and forward
Mitigates risks by using hedging techniques
is getting bigger

35. The timing of when we execute hedges drastically impacts the ____________ we achieve
currency options and forward
weakens
12%
average rate

36. What does it mean to hedge?
three digit ticker symbol ex: USD - United States Dollar
foreign currency* rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
strengthens

37. 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
is getting bigger
Pound strengthens
Effective Hedge rate
downward slope

38. What rate is used to book daily transactions?
Indirect quote
The currency of the primary economic environment in which the legal entity operates
Treasury Daily Spot Rate
1USD

39. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
functional currency
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Effective Hedge rate

40. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
1.40 - Because I would be able to buy more euros
B/S rate
three digit ticker symbol ex: USD - United States Dollar
Effective Hedge rate

41. __________ is used for translation of foreign currency B/S to reporting currency
two business days
CNY
Pound strengthens
B/S rate

42. The current market price for any currency pair is referred to as ?
less
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
weakens
Spot price

43. What are some of the reason not hedge at all or partially hedge in a few countries?
3 business days and beyond
12%
Indirect quote
Government regulation and cost of hedging

44. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
more
BS account balances
End of Period Rate (SCO-4 rate)

45. 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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
SEK

46. How many currencies use Direct method of quoting?
Government regulation and cost of hedging
The calculation is the same - but instead of adding forward points you subtract
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
There are FOUR

47. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
300 billion
Forward Points
lost
allow FX rate

48. What is the ticker symbol for Brazilian Real?
translation
spot price x interest differential
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
BRL

49. Give an example of one way to hedge a price increase in gas prices...
F&O account 87503
5%
British Pound - Australian Dollar - New Zealand Dollar - Euro
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

50. GBP-USD account for ____ of trading FX volume
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
12%
strengthens
The calculation is the same - but instead of adding forward points you subtract