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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. US Treasuries is the second highest trading volume accounting for...
AUD
300 billion
average rate
valuable

2. 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
13%
downward slope
3 business days and beyond
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

3. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
spot price x interest differential
What is happening
foreign currency* rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

4. How is the hedge rate variance calculated?
There are FOUR
The difference between hedge rate and final effective hedge rate
Oracle
largest - It is open 24 hours a day - except weekends

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?
1.40 - Because I would be able to buy more euros
financial strength
direct
exchange one currency for another

6. How is the price of the forward contract determined?
FX policy
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Oracle
Current market price - spot - plus or minus the difference between the interest rates of the two countries

7. Revaluation can be hedged - while ___________ cannot be hedged
APL rate
liquidity and cash
is getting bigger
translation

8. Forward points is equal to...
This means 1 Euro measured against US Dollars is worth $1.40
CNY
spot price x interest differential
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

9. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
Spot price
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
3 -210 billion (3 trillion)

10. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
The calculation is the same - but instead of adding forward points you subtract
1 Case = 2 pizzas
3 -210 billion (3 trillion)
SEK

11. Direct quote- _____________=USD
What is happening
Current market price - spot - plus or minus the difference between the interest rates of the two countries
MXN - EUR - CHF
foreign currency* rate

12. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
This means 1 Euro measured against US Dollars is worth $1.40
The calculation is the same - but instead of adding forward points you subtract
more

13. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
300 billion
exchange rate
adverse fluctuations
liquidity and cash

14. GBP-USD account for ____ of trading FX volume
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
translation
The calculation is the same - but instead of adding forward points you subtract
12%

15. How does treasury accomplish its purpose?
30%
This means 1 Euro measured against US Dollars is worth $1.40
Mitigates risks by using hedging techniques
British Pound - Australian Dollar - New Zealand Dollar - Euro

16. What are the four major FX accounting guidances?
foreign currency* rate
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
exchange rate

17. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
End of Period Rate (SCO-4 rate)
There are FOUR
strengthens
an estimate of aggregate rate

18. If 1 pizza = 15 USD then ____ = 1/15 pizza
Current market price - spot - plus or minus the difference between the interest rates of the two countries
SEK
1USD
There are FOUR

19. How do you read EUR-USD = 1.40
End of Period Rate (SCO-4 rate)
1 share = 1/3 case
BRL
This means 1 Euro measured against US Dollars is worth $1.40

20. What rate is used on the P&L?
less
B/S rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
valuable

21. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The currency of the primary economic environment in which the legal entity operates
FX policy
Spot price

22. The Foreign Exchange market is the __________ market in the world
Mitigates risks by using hedging techniques
foreign exchange forward contract
largest - It is open 24 hours a day - except weekends
Treasury Daily Spot Rate

23. The rules for adding or subtracting forward points depend on whether it is quoted...
12%
B/S rate
1 share = 1/3 case
directly or indirectly

24. ____________ is used for translation of foreign currency P&L to Reporting currency?
Effective Hedge rate
Spot price
End of Period Rate (SCO-4 rate)
APL rate

25. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
strengthens
actual weighted average contract rate
foreign currency* rate
translation

26. What would happen if the US interest rate was bigger than Mexico?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The calculation is the same - but instead of adding forward points you subtract
B/S rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

27. How many currencies use Direct method of quoting?
Used to hedge against variability in expected future cash flows
There are FOUR
Indirect quote
MXN - EUR - CHF

28. USD-JPY account for ____ of trading FX volume
fx forward
13%
Used to hedge against variability in expected future cash flows
BS account balances

29. What is Fair Value hedge program used for?
average rate
financial strategy and financial policy
Currency in which the entity reports results externally
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

30. When is hedge rate published?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
valuable
average rate
6 weeks prior to Q/E

31. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
more
3 business days and beyond
3 -210 billion (3 trillion)

32. What is the trading in volume for FX?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
1.60 - Because you can buy more dollars
SEK
3 -210 billion (3 trillion)

33. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
Forward contracts and Options
Used to hedge against variability in expected future cash flows
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

34. The currency ticker for the Sweden Kroner is?
SFAS 52
liquidity and cash
SEK
BRL

35. 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...
5%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
is getting bigger

36. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
exchange one currency for another
5%

37. What is the purpose of hedging?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
lost
adverse fluctuations

38. What are some of the reason not hedge at all or partially hedge in a few countries?
foreign exchange forward contract
three digit ticker symbol ex: USD - United States Dollar
1.60 - Because you can buy more dollars
Government regulation and cost of hedging

39. Where are revaluations done?
Oracle
There are FOUR
BS account balances
1 unit

40. If the Mexico rate is 5.25%/year and the US is 0.25%/year - What is the rate that would be used to calculate the forward rate?
The currency of the primary economic environment in which the legal entity operates
strengthens
5%
financial strategy and financial policy

41. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
Mitigates risks by using hedging techniques
There are FOUR
FX policy

42. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
financial risk
Currency in which the entity reports results externally
an estimate of aggregate rate

43. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
translation
B/S rate
SFAS 52

44. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
two business days
direct
foreign exchange forward contract

45. What is local currency?

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46. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Currency in which the entity reports results externally
value
financial strategy and financial policy
1 unit

47. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
12%
End of Period Rate (SCO-4 rate)
lost
Mitigates risks by using hedging techniques

48. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
more
an estimate of aggregate rate
downward slope
value

49. 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
Pound strengthens
translation
exchange rate
P&L activity

50. A forward happens in...
currency options and forward
financial strategy and financial policy
12%
3 business days and beyond