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 P&L?
The calculation is the same - but instead of adding forward points you subtract
Used to hedge against variability in expected future cash flows
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Government regulation and cost of hedging

2. Revaluation can be hedged - while ___________ cannot be hedged
financial strength
foreign exchange forward contract
APL rate
translation

3. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
financial risk
Currency in which the entity reports results externally
foreign exchange forward contract
exchange one currency for another

4. Forward points is equal to...
30%
spot price x interest differential
liquidity and cash
financial strategy and financial policy

5. Give some examples of countries where its hard to hedge?
B/S rate
financial strength
China - Malaysia - Colombia - Chile - Argentina
Mitigates risks by using hedging techniques

6. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
liquidity and cash
direct
Currency in which the entity reports results externally

7. Australian currency code is...
interest rate differential
liquidity and cash
F&O account 87503
AUD

8. ____________ should be denominated in the currency they will either be paid or received in...
China - Malaysia - Colombia - Chile - Argentina
AUD
largest - It is open 24 hours a day - except weekends
BS account balances

9. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
13%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
15 months in advance - layering on hedges through time
more

10. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
F&O account 87503
1USD
1 share = 1/3 case
an estimate of aggregate rate

11. What are the four major FX accounting guidances?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
exchange one currency for another
financial risk
adverse fluctuations

12. What is currency Translation?

13. 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
allow FX rate
Forward contracts and Options
Government regulation and cost of hedging
exchange rate

14. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
Currency in which the entity reports results externally
adverse fluctuations
average rate

15. What are some of the reason not hedge at all or partially hedge in a few countries?
B/S rate
Forward contracts and Options
Pound strengthens
Government regulation and cost of hedging

16. What rate is used to book daily transactions?
1.40 - Because I would be able to buy more euros
Treasury Daily Spot Rate
lost
Oracle

17. What would happen if the US interest rate was bigger than Mexico?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1 unit
The currency of the primary economic environment in which the legal entity operates
The calculation is the same - but instead of adding forward points you subtract

18. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
directly or indirectly
translation
13%

19. If 1 pizza = 15 USD then ____ = 1/15 pizza
adverse fluctuations
12%
1USD
B/S rate

20. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
weakens
1 Case = 2 pizzas
three digit ticker symbol ex: USD - United States Dollar
Treasury Daily Spot Rate

21. What does it mean to hedge?
currency options and forward
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
AUD
Spot price

22. ____________ is used for translation of foreign currency P&L to Reporting currency?
largest - It is open 24 hours a day - except weekends
APL rate
BRL
financial strategy and financial policy

23. What are the exceptions to the ticker naming convention?
Currency in which the entity reports results externally
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
MXN - EUR - CHF
B/S rate

24. How do you read EUR-USD = 1.40
1.60 - Because you can buy more dollars
value
exchange rate
This means 1 Euro measured against US Dollars is worth $1.40

25. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Currency of the respective operating unit's country
actual weighted average contract rate
exchange rate
90%

26. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
FX policy
value
This means 1 Euro measured against US Dollars is worth $1.40
Indirect quote

27. What is reporting currency?
15 months in advance - layering on hedges through time
strengthens
Currency in which the entity reports results externally
21%

28. Forward points multiply the exchange rate by the...
interest rate differential
30%
liquidity and cash
three digit ticker symbol ex: USD - United States Dollar

29. The currency ticker for the Sweden Kroner is?
SEK
Effective Hedge rate
exchange one currency for another
Oracle

30. The timing of when we execute hedges drastically impacts the ____________ we achieve
This means 1 Euro measured against US Dollars is worth $1.40
average rate
Currency in which the entity reports results externally
currency options and forward

31. What are non-monetary accounts?
largest - It is open 24 hours a day - except weekends
fx forward
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Current market price - spot - plus or minus the difference between the interest rates of the two countries

32. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
an estimate of aggregate rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
21%

33. What is the purpose of hedging?
more
15 months in advance - layering on hedges through time
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

34. A forward happens in...
3 business days and beyond
financial strength
Treasury Daily Spot Rate
SFAS 52

35. What is Revaluation?

36. US Treasuries is the second highest trading volume accounting for...
Government regulation and cost of hedging
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
300 billion
downward slope

37. EUR-USD currency pair accounts for about ____ of all FX volume
30%
Currency in which the entity reports results externally
China - Malaysia - Colombia - Chile - Argentina
Used to hedge against variability in expected future cash flows

38. A Spot happens in...
300 billion
two business days
Forward contracts and Options
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

39. What currencies use Direct method of quoting?
Forward Points
SEK
foreign exchange forward contract
British Pound - Australian Dollar - New Zealand Dollar - Euro

40. 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...
CNY
Pound strengthens
is getting bigger
6 weeks prior to Q/E

41. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
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
5%
direct

42. What are monetary accounts?
less
Oracle
BS account balances
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

43. 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
an estimate of aggregate rate
Pound strengthens
British Pound - Australian Dollar - New Zealand Dollar - Euro
Treasury Daily Spot Rate

44. USD-JPY account for ____ of trading FX volume
actual weighted average contract rate
is getting bigger
13%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

45. What is Fair Value hedge program used for?
21%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
The calculation is the same - but instead of adding forward points you subtract

46. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
strengthens
three digit ticker symbol ex: USD - United States Dollar
weakens
British Pound - Australian Dollar - New Zealand Dollar - Euro

47. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
1USD
1.40 - Because I would be able to buy more euros
Currency of the respective operating unit's country

48. What rate is used on the balance sheet?
Mitigates risks by using hedging techniques
Indirect quote
End of Period Rate (SCO-4 rate)
MXN - EUR - CHF

49. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
less
The difference between hedge rate and final effective hedge rate
1USD
1.60 - Because you can buy more dollars

50. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
spot price x interest differential
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
currency options and forward
1 unit