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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. 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?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1.40 - Because I would be able to buy more euros
B/S rate
Oracle

2. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Currency in which the entity reports results externally
actual weighted average contract rate
strengthens
translation

3. What are some of the reason not hedge at all or partially hedge in a few countries?
End of Period Rate (SCO-4 rate)
Government regulation and cost of hedging
Currency of the respective operating unit's country
Indirect quote

4. How far in advance do we hedge?
foreign currency* rate
The difference between hedge rate and final effective hedge rate
China - Malaysia - Colombia - Chile - Argentina
15 months in advance - layering on hedges through time

5. How many currencies use Direct method of quoting?
SEK
functional currency
There are FOUR
Oracle

6. The Foreign Exchange market is the __________ market in the world
Effective Hedge rate
largest - It is open 24 hours a day - except weekends
BRL
actual weighted average contract rate

7. An ___________ expresses the value of one currency relative to another
Government regulation and cost of hedging
British Pound - Australian Dollar - New Zealand Dollar - Euro
exchange rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

8. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
actual weighted average contract rate
fx forward

9. What rate is used to book daily transactions?
This means 1 Euro measured against US Dollars is worth $1.40
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Treasury Daily Spot Rate
SFAS 52

10. All other currency trading with USD accounts for ____ of FX volume
financial strategy and financial policy
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
21%
Used to hedge against variability in expected future cash flows

11. What dictates minimum and maximum hedge percentages?
FX policy
SFAS 52
This means 1 Euro measured against US Dollars is worth $1.40
Forward contracts and Options

12. The difference in interest rate is referred to as...
Forward Points
average rate
financial strategy and financial policy
15 months in advance - layering on hedges through time

13. The ticker symbol for the Chinese Yuan
translation
The difference between hedge rate and final effective hedge rate
CNY
foreign currency* rate

14. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
value
21%
30%

15. A forward happens in...
3 business days and beyond
30%
Currency in which the entity reports results externally
strengthens

16. GBP-USD account for ____ of trading FX volume
12%
valuable
This means 1 Euro measured against US Dollars is worth $1.40
Oracle

17. What are non-monetary accounts?
5%
BRL
FX policy
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

18. Revaluation can be hedged - while ___________ cannot be hedged
translation
5%
Effective Hedge rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

19. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
Current market price - spot - plus or minus the difference between the interest rates of the two countries
BS account balances
End of Period Rate (SCO-4 rate)

20. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
The calculation is the same - but instead of adding forward points you subtract
valuable
allow FX rate
Spot price

21. 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?
5%
Currency in which the entity reports results externally
translation
largest - It is open 24 hours a day - except weekends

22. The currency ticker for the Sweden Kroner is?
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.
SEK
P&L activity

23. What is local currency?

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24. 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
SEK
interest rate differential
Pound strengthens
Mitigates risks by using hedging techniques

25. USD-JPY account for ____ of trading FX volume
The difference between hedge rate and final effective hedge rate
The currency of the primary economic environment in which the legal entity operates
13%
functional currency

26. 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
downward slope
currency options and forward
12%

27. Forward points is equal to...
30%
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
spot price x interest differential

28. Direct quote- _____________=USD
Indirect quote
There are FOUR
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
foreign currency* rate

29. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
BS account balances
foreign exchange forward contract
British Pound - Australian Dollar - New Zealand Dollar - Euro
F&O account 87503

30. What is the ticker symbol for Brazilian Real?
BRL
This means 1 Euro measured against US Dollars is worth $1.40
Oracle
less

31. The offset of revaluation is recorded to...
financial strategy and financial policy
F&O account 87503
APL rate
spot price x interest differential

32. In general EUR-USD is involved in roughly ___ of all FX volume
Currency in which the entity reports results externally
90%
actual weighted average contract rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

33. How is the hedge rate variance calculated?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
translation
The difference between hedge rate and final effective hedge rate
exchange rate

34. Australian currency code is...
AUD
interest rate differential
90%
spot price x interest differential

35. 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
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
currency options and forward
P&L activity
allow FX rate

36. What is reporting currency?
three digit ticker symbol ex: USD - United States Dollar
exchange one currency for another
Currency in which the entity reports results externally
MXN - EUR - CHF

37. A Spot happens in...
largest - It is open 24 hours a day - except weekends
value
two business days
6 weeks prior to Q/E

38. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
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
Current market price - spot - plus or minus the difference between the interest rates of the two countries
fx forward

39. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Used to hedge against variability in expected future cash flows
value
Effective Hedge rate
F&O account 87503

40. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
exchange rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
lost
financial risk

41. What instruments do we use to hedge?
Forward contracts and Options
13%
allow FX rate
Indirect quote

42. Treasury ensures that companies have ____________ to meet its obligations
Government regulation and cost of hedging
liquidity and cash
spot price x interest differential
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

43. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
direct
There are FOUR
1USD

44. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
SEK
adverse fluctuations
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
FX policy

45. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
The calculation is the same - but instead of adding forward points you subtract
1USD
Spot price

46. How is the price of the forward contract determined?
5%
translation
13%
Current market price - spot - plus or minus the difference between the interest rates of the two countries

47. What currencies use Direct method of quoting?
BS account balances
AUD
British Pound - Australian Dollar - New Zealand Dollar - Euro
1 share = 1/3 case

48. EUR-USD currency pair accounts for about ____ of all FX volume
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
30%
3 -210 billion (3 trillion)
The currency of the primary economic environment in which the legal entity operates

49. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
30%
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 share = 1/3 case

50. What is Revaluation?

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