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. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Spot price
MXN - EUR - CHF
an estimate of aggregate rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

2. Treasury ensures that companies have ____________ to meet its obligations
directly or indirectly
liquidity and cash
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
BS account balances

3. What rate is used on the P&L?
interest rate differential
Currency of the respective operating unit's country
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Pound strengthens

4. What dictates minimum and maximum hedge percentages?
FX policy
Spot price
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
China - Malaysia - Colombia - Chile - Argentina

5. A forward happens in...
Spot price
15 months in advance - layering on hedges through time
financial strategy and financial policy
3 business days and beyond

6. ____________ should be denominated in the currency they will either be paid or received in...
1 Case = 2 pizzas
The calculation is the same - but instead of adding forward points you subtract
There are FOUR
BS account balances

7. ____________ - foreign currency/rate = USD
China - Malaysia - Colombia - Chile - Argentina
90%
Indirect quote
Current market price - spot - plus or minus the difference between the interest rates of the two countries

8. An ___________ expresses the value of one currency relative to another
Currency of the respective operating unit's country
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
exchange rate

9. 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...
less
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
is getting bigger
Currency of the respective operating unit's country

10. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
British Pound - Australian Dollar - New Zealand Dollar - Euro
less

11. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
downward slope
Forward contracts and Options
less

12. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
functional currency
What is happening
an estimate of aggregate rate
30%

13. What are non-monetary accounts?
Currency in which the entity reports results externally
Spot price
21%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

14. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
less
End of Period Rate (SCO-4 rate)
actual weighted average contract rate

15. Revaluation can be hedged - while ___________ cannot be hedged
1 unit
adverse fluctuations
translation
CNY

16. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
Used to hedge against variability in expected future cash flows
financial strength
actual weighted average contract rate

17. A Spot happens in...
1.40 - Because I would be able to buy more euros
liquidity and cash
two business days
The calculation is the same - but instead of adding forward points you subtract

18. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
Currency in which the entity reports results externally
British Pound - Australian Dollar - New Zealand Dollar - Euro
is getting bigger

19. What is Revaluation?

20. What would happen if the US interest rate was bigger than Mexico?
300 billion
The calculation is the same - but instead of adding forward points you subtract
fx forward
Treasury Daily Spot Rate

21. Treasury is responsible for managing companies funds and determining the firms'...
weakens
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
financial strategy and financial policy
two business days

22. Where are revaluations done?
Oracle
Used to hedge against variability in expected future cash flows
1.60 - Because you can buy more dollars
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

23. Forward points multiply the exchange rate by the...
two business days
interest rate differential
lost
P&L activity

24. USD-JPY account for ____ of trading FX volume
13%
B/S rate
Forward Points
5%

25. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
21%
translation
Forward contracts and Options
adverse fluctuations

26. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
300 billion
three digit ticker symbol ex: USD - United States Dollar
The currency of the primary economic environment in which the legal entity operates
Forward contracts and Options

27. EUR-USD currency pair accounts for about ____ of all 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.
30%
two business days
is getting bigger

28. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
FX policy
1 unit
The difference between hedge rate and final effective hedge rate
financial strategy and financial policy

29. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
B/S rate
30%
actual weighted average contract rate

30. 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?
1.40 - Because I would be able to buy more euros
The calculation is the same - but instead of adding forward points you subtract
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

31. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
foreign exchange forward contract
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
6 weeks prior to Q/E
more

32. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
SEK
Treasury Daily Spot Rate
Currency of the respective operating unit's country

33. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
The currency of the primary economic environment in which the legal entity operates
300 billion
strengthens
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

34. All other currency trading with USD accounts for ____ of FX volume
Forward Points
spot price x interest differential
21%
average rate

35. What is cash flow used for?
3 business days and beyond
1USD
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Used to hedge against variability in expected future cash flows

36. ____________ is used for translation of foreign currency P&L to Reporting currency?
financial risk
foreign exchange forward contract
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
APL rate

37. Treasury is responsible for banking requirements - funding for the business and managing...
British Pound - Australian Dollar - New Zealand Dollar - Euro
financial risk
foreign currency* rate
translation

38. The currency ticker for the Sweden Kroner is?
three digit ticker symbol ex: USD - United States Dollar
The difference between hedge rate and final effective hedge rate
weakens
SEK

39. What is reporting currency?
B/S rate
1.40 - Because I would be able to buy more euros
Currency in which the entity reports results externally
financial strength

40. GBP-USD account for ____ of trading FX volume
12%
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
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

41. What currencies use Direct method of quoting?
The calculation is the same - but instead of adding forward points you subtract
Currency in which the entity reports results externally
British Pound - Australian Dollar - New Zealand Dollar - Euro
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

42. The rules for adding or subtracting forward points depend on whether it is quoted...
less
directly or indirectly
5%
Current market price - spot - plus or minus the difference between the interest rates of the two countries

43. Australian currency code is...
actual weighted average contract rate
The currency of the primary economic environment in which the legal entity operates
translation
AUD

44. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
3 business days and beyond
1.60 - Because you can buy more dollars
Pound strengthens
5%

45. B/S rate is used for revaluation of foreign currency transaction to...
B/S rate
weakens
functional currency
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

46. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
actual weighted average contract rate
currency options and forward

47. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
foreign currency* rate
financial strategy and financial policy
Government regulation and cost of hedging

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
What is happening
3 business days and beyond
Pound strengthens
BRL

49. The current market price for any currency pair is referred to as ?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
an estimate of aggregate rate
Spot price
1 unit

50. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
SFAS 52
Indirect quote
13%
direct