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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 reporting currency?
1USD
an estimate of aggregate rate
90%
Currency in which the entity reports results externally

2. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
1 share = 1/3 case
1.40 - Because I would be able to buy more euros
AUD

3. The difference in interest rate is referred to as...
Oracle
BS account balances
1 unit
Forward Points

4. What instruments do we use to hedge?
Forward contracts and Options
1 Case = 2 pizzas
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
End of Period Rate (SCO-4 rate)

5. 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?
B/S rate
average rate
1.40 - Because I would be able to buy more euros
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

6. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
SEK
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

7. What are monetary accounts?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Spot price
downward slope

8. Treasury's role is to identify risk - control to prevent erosion of...
12%
Pound strengthens
exchange rate
financial strength

9. 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
FX policy
BS account balances
allow FX rate
MXN - EUR - CHF

10. What is Fair Value hedge program used for?
Treasury Daily Spot Rate
three digit ticker symbol ex: USD - United States Dollar
1.40 - Because I would be able to buy more euros
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

11. All other currency trading with USD accounts for ____ of FX volume
Mitigates risks by using hedging techniques
currency options and forward
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
21%

12. What does it mean to hedge?
strengthens
SFAS 52
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
The calculation is the same - but instead of adding forward points you subtract

13. Revaluation can be hedged - while ___________ cannot be hedged
translation
F&O account 87503
valuable
direct

14. Australian currency code is...
currency options and forward
AUD
translation
Forward contracts and Options

15. The rules for adding or subtracting forward points depend on whether it is quoted...
30%
FX policy
directly or indirectly
6 weeks prior to Q/E

16. What is local currency?

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17. If 1 pizza = 15 USD then ____ = 1/15 pizza
exchange one currency for another
1USD
fx forward
The calculation is the same - but instead of adding forward points you subtract

18. The Foreign Exchange market is the __________ market in the world
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
exchange one currency for another
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
largest - It is open 24 hours a day - except weekends

19. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
exchange one currency for another
1 Case = 2 pizzas
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

20. 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
exchange rate
21%
downward slope

21. Give an example of one way to hedge a price increase in gas prices...
The currency of the primary economic environment in which the legal entity operates
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
financial strength
less

22. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
Currency in which the entity reports results externally
B/S rate
valuable

23. ____________ - foreign currency/rate = USD
exchange rate
Indirect quote
15 months in advance - layering on hedges through time
directly or indirectly

24. In general EUR-USD is involved in roughly ___ of all FX volume
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
downward slope
90%
functional currency

25. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
direct
financial strategy and financial policy
spot price x interest differential
less

26. What is the purpose of hedging?
Used to hedge against variability in expected future cash flows
1 unit
an estimate of aggregate rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

27. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
15 months in advance - layering on hedges through time
Forward contracts and Options
allow FX rate

28. What dictates minimum and maximum hedge percentages?
more
Currency of the respective operating unit's country
FX policy
valuable

29. What are some of the reason not hedge at all or partially hedge in a few countries?
15 months in advance - layering on hedges through time
currency options and forward
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Government regulation and cost of hedging

30. Hedging instrument used in Fair Value Hedge program is...
financial strategy and financial policy
fx forward
F&O account 87503
300 billion

31. What is Revaluation?

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32. 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
BRL
fx forward
SEK

33. Treasury is responsible for managing companies funds and determining the firms'...
What is happening
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
Forward contracts and Options
financial strategy and financial policy

34. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Used to hedge against variability in expected future cash flows
British Pound - Australian Dollar - New Zealand Dollar - Euro
This means 1 Euro measured against US Dollars is worth $1.40
three digit ticker symbol ex: USD - United States Dollar

35. How many currencies use Direct method of quoting?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
There are FOUR
weakens
AUD

36. Forward points multiply the exchange rate by the...
interest rate differential
actual weighted average contract rate
direct
300 billion

37. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
functional currency
SFAS 52
exchange rate
BRL

38. What rate is used on the P&L?
5%
directly or indirectly
This means 1 Euro measured against US Dollars is worth $1.40
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

39. Forward points is equal to...
financial risk
lost
exchange rate
spot price x interest differential

40. ____________ is used for translation of foreign currency P&L to Reporting currency?
30%
three digit ticker symbol ex: USD - United States Dollar
FX policy
APL rate

41. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
There are FOUR
actual weighted average contract rate
value
adverse fluctuations

42. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
is getting bigger
Effective Hedge rate
This means 1 Euro measured against US Dollars is worth $1.40
two business days

43. EUR-USD currency pair accounts for about ____ of all FX volume
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 share = 1/3 case
average rate
30%

44. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
exchange one currency for another
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Forward contracts and Options
APL rate

45. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
1 share = 1/3 case
The calculation is the same - but instead of adding forward points you subtract
P&L activity
two business days

46. The current market price for any currency pair is referred to as ?
direct
3 -210 billion (3 trillion)
Government regulation and cost of hedging
Spot price

47. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
30%
MXN - EUR - CHF
APL rate

48. Hedging instrument used in cash flow program is...
CNY
lost
value
currency options and forward

49. B/S rate is used for revaluation of foreign currency transaction to...
P&L activity
Pound strengthens
functional currency
BRL

50. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
1.60 - Because you can buy more dollars
Forward Points
Current market price - spot - plus or minus the difference between the interest rates of the two countries