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. When is hedge rate published?
exchange one currency for another
End of Period Rate (SCO-4 rate)
6 weeks prior to Q/E
1USD

2. How is the price of the forward contract determined?
12%
exchange rate
two business days
Current market price - spot - plus or minus the difference between the interest rates of the two countries

3. What is reporting currency?
FX policy
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Currency in which the entity reports results externally
lost

4. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
5%
lost
B/S rate
is getting bigger

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

6. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
currency options and forward
China - Malaysia - Colombia - Chile - Argentina
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

7. What rate is used to book daily transactions?
Government regulation and cost of hedging
Treasury Daily Spot Rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
two business days

8. Australian currency code is...
AUD
Currency in which the entity reports results externally
value
What is happening

9. The difference in interest rate is referred to as...
Indirect quote
Forward Points
BS account balances
Pound strengthens

10. What is the purpose of hedging?
Government regulation and cost of hedging
3 business days and beyond
Mitigates risks by using hedging techniques
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

11. The current market price for any currency pair is referred to as ?
foreign exchange forward contract
fx forward
BRL
Spot price

12. What are non-monetary accounts?
fx forward
financial strategy and financial policy
Currency in which the entity reports results externally
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

13. 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...
The calculation is the same - but instead of adding forward points you subtract
is getting bigger
largest - It is open 24 hours a day - except weekends
1 unit

14. 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
exchange one currency for another
strengthens
three digit ticker symbol ex: USD - United States Dollar

15. What are monetary accounts?
MXN - EUR - CHF
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 business days and beyond
liquidity and cash

16. How do you read EUR-USD = 1.40
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Forward contracts and Options
This means 1 Euro measured against US Dollars is worth $1.40
financial strength

17. 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
foreign exchange forward contract
downward slope
weakens
Forward Points

18. Direct quote- _____________=USD
exchange one currency for another
less
foreign currency* rate
Oracle

19. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
300 billion
more
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1 share = 1/3 case

20. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
F&O account 87503
1 unit
There are FOUR
foreign exchange forward contract

21. Revaluation can be hedged - while ___________ cannot be hedged
300 billion
MXN - EUR - CHF
exchange rate
translation

22. What does it mean to hedge?
1USD
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
90%
Government regulation and cost of hedging

23. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
direct
more
liquidity and cash

24. If 1 pizza = 15 USD then ____ = 1/15 pizza
BS account balances
1USD
Forward contracts and Options
13%

25. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
valuable
21%
more
less

26. How many currencies use Direct method of quoting?
There are FOUR
1 Case = 2 pizzas
Effective Hedge rate
6 weeks prior to Q/E

27. What are the four major FX accounting guidances?
directly or indirectly
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Indirect quote

28. What is currency Translation?

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29. Hedging instrument used in Fair Value Hedge program is...
fx forward
SFAS 52
3 business days and beyond
Mitigates risks by using hedging techniques

30. What instruments do we use to hedge?
CNY
Forward Points
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Forward contracts and Options

31. US Treasuries is the second highest trading volume accounting for...
There are FOUR
300 billion
The calculation is the same - but instead of adding forward points you subtract
allow FX rate

32. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
adverse fluctuations
liquidity and cash
Oracle
value

33. All other currency trading with USD accounts for ____ of FX volume
MXN - EUR - CHF
largest - It is open 24 hours a day - except weekends
13%
21%

34. What is local currency?

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35. 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
Oracle
The calculation is the same - but instead of adding forward points you subtract
Pound strengthens
CNY

36. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
liquidity and cash
APL rate
actual weighted average contract rate

37. How far in advance do we hedge?
BS account balances
Forward Points
is getting bigger
15 months in advance - layering on hedges through time

38. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
CNY
strengthens
foreign currency* rate
The difference between hedge rate and final effective hedge rate

39. __________ is used for translation of foreign currency B/S to reporting currency
Indirect quote
3 -210 billion (3 trillion)
Current market price - spot - plus or minus the difference between the interest rates of the two countries
B/S rate

40. Give an example of one way to hedge a price increase in gas prices...
P&L activity
average rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Government regulation and cost of hedging

41. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
three digit ticker symbol ex: USD - United States Dollar
exchange one currency for another
30%
12%

42. What would happen if the US interest rate was bigger than Mexico?
6 weeks prior to Q/E
functional currency
The calculation is the same - but instead of adding forward points you subtract
Treasury Daily Spot Rate

43. A forward happens in...
translation
3 business days and beyond
three digit ticker symbol ex: USD - United States Dollar
Forward Points

44. Forward points multiply the exchange rate by the...
exchange rate
valuable
SFAS 52
interest rate differential

45. What rate is used on the balance sheet?
SEK
The difference between hedge rate and final effective hedge rate
P&L activity
End of Period Rate (SCO-4 rate)

46. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
more
Forward Points
value

47. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1 share = 1/3 case
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
Indirect quote
1.60 - Because you can buy more dollars

48. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
translation
directly or indirectly
End of Period Rate (SCO-4 rate)

49. ____________ - foreign currency/rate = USD
three digit ticker symbol ex: USD - United States Dollar
actual weighted average contract rate
Indirect quote
The difference between hedge rate and final effective hedge rate

50. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
What is happening
Forward contracts and Options
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
30%