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 are monetary accounts?
APL rate
Effective Hedge rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
foreign exchange forward contract

2. The offset of revaluation is recorded to...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
F&O account 87503
BS account balances
1.60 - Because you can buy more dollars

3. ____________ is used for translation of foreign currency P&L to Reporting currency?
The currency of the primary economic environment in which the legal entity operates
financial strategy and financial policy
Spot price
APL rate

4. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
1 Case = 2 pizzas
liquidity and cash
1.40 - Because I would be able to buy more euros

5. What does it mean to hedge?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
This means 1 Euro measured against US Dollars is worth $1.40
financial strategy and financial policy
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

6. An ___________ expresses the value of one currency relative to another
Used to hedge against variability in expected future cash flows
This means 1 Euro measured against US Dollars is worth $1.40
exchange rate
15 months in advance - layering on hedges through time

7. How is the hedge rate variance calculated?
weakens
There are FOUR
The difference between hedge rate and final effective hedge rate
The calculation is the same - but instead of adding forward points you subtract

8. How does treasury accomplish its purpose?
This means 1 Euro measured against US Dollars is worth $1.40
1 share = 1/3 case
1 Case = 2 pizzas
Mitigates risks by using hedging techniques

9. B/S rate is used for revaluation of foreign currency transaction to...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
functional currency
translation
APL rate

10. 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
exchange one currency for another
This means 1 Euro measured against US Dollars is worth $1.40
downward slope
Used to hedge against variability in expected future cash flows

11. 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...
Spot price
is getting bigger
Forward contracts and Options
3 business days and beyond

12. 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
Currency in which the entity reports results externally
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 business days and beyond

13. The current market price for any currency pair is referred to as ?
SFAS 52
Spot price
300 billion
Forward contracts and Options

14. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Forward Points
average rate

15. The currency ticker for the Sweden Kroner is?
Government regulation and cost of hedging
weakens
SEK
Mitigates risks by using hedging techniques

16. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
Forward Points
currency options and forward
Currency in which the entity reports results externally

17. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
MXN - EUR - CHF
spot price x interest differential
90%

18. What rate is used to book daily transactions?
three digit ticker symbol ex: USD - United States Dollar
Treasury Daily Spot Rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial strategy and financial policy

19. What is the trading in volume for FX?
3 -210 billion (3 trillion)
financial risk
British Pound - Australian Dollar - New Zealand Dollar - Euro
The calculation is the same - but instead of adding forward points you subtract

20. What is cash flow used for?
Forward Points
F&O account 87503
Used to hedge against variability in expected future cash flows
Indirect quote

21. All other currency trading with USD accounts for ____ of FX volume
21%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
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
1 Case = 2 pizzas

22. The timing of when we execute hedges drastically impacts the ____________ we achieve
actual weighted average contract rate
average rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
90%

23. Treasury's role is to identify risk - control to prevent erosion of...
largest - It is open 24 hours a day - except weekends
foreign currency* rate
currency options and forward
financial strength

24. GBP-USD account for ____ of trading FX volume
BS account balances
12%
1 Case = 2 pizzas
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

25. Australian currency code is...
AUD
weakens
Current market price - spot - plus or minus the difference between the interest rates of the two countries
foreign currency* rate

26. The ticker symbol for the Chinese Yuan
valuable
more
CNY
BRL

27. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
lost
Currency in which the entity reports results externally
The currency of the primary economic environment in which the legal entity operates
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

28. ____________ - foreign currency/rate = USD
Forward Points
Indirect quote
3 business days and beyond
financial risk

29. Forward points is equal to...
downward slope
spot price x interest differential
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
Effective Hedge rate

30. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
90%
largest - It is open 24 hours a day - except weekends
Government regulation and cost of hedging
1.60 - Because you can buy more dollars

31. EUR-USD currency pair accounts for about ____ of all FX volume
The calculation is the same - but instead of adding forward points you subtract
12%
Effective Hedge rate
30%

32. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
currency options and forward
What is happening
China - Malaysia - Colombia - Chile - Argentina

33. __________ is used for translation of foreign currency B/S to reporting currency
There are FOUR
Used to hedge against variability in expected future cash flows
B/S rate
spot price x interest differential

34. A forward happens in...
Forward contracts and Options
exchange rate
1USD
3 business days and beyond

35. 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
Oracle
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

36. What instruments do we use to hedge?
Forward contracts and Options
3 -210 billion (3 trillion)
BS account balances
Currency of the respective operating unit's country

37. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Oracle
directly or indirectly

38. US Treasuries is the second highest trading volume accounting for...
Forward contracts and Options
300 billion
The calculation is the same - but instead of adding forward points you subtract
12%

39. What are the four major FX accounting guidances?
1 unit
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
B/S rate
SFAS 52

40. What is Revaluation?

41. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Forward Points
End of Period Rate (SCO-4 rate)
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

42. What is currency Translation?

43. What is the purpose of hedging?
Forward Points
15 months in advance - layering on hedges through time
5%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

44. How many currencies use Direct method of quoting?
5%
translation
foreign exchange forward contract
There are FOUR

45. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
The calculation is the same - but instead of adding forward points you subtract
an estimate of aggregate rate
1.60 - Because you can buy more dollars
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

46. What is Fair Value hedge program used for?
1 Case = 2 pizzas
End of Period Rate (SCO-4 rate)
Government regulation and cost of hedging
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

47. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
is getting bigger
12%
valuable
3 business days and beyond

48. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
5%
three digit ticker symbol ex: USD - United States Dollar
largest - It is open 24 hours a day - except weekends
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

49. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

50. Revaluation can be hedged - while ___________ cannot be hedged
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
90%
translation
value