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 is local currency?

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2. 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
allow FX rate
1 Case = 2 pizzas
APL rate
interest rate differential

3. What are some of the reason not hedge at all or partially hedge in a few countries?
average rate
BRL
MXN - EUR - CHF
Government regulation and cost of hedging

4. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
an estimate of aggregate rate
foreign exchange forward contract
liquidity and cash

5. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
three digit ticker symbol ex: USD - United States Dollar
The calculation is the same - but instead of adding forward points you subtract
liquidity and cash
adverse fluctuations

6. EUR-USD currency pair accounts for about ____ of all FX volume
1.40 - Because I would be able to buy more euros
30%
three digit ticker symbol ex: USD - United States Dollar
Forward Points

7. What rate is used on the balance sheet?
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
End of Period Rate (SCO-4 rate)
foreign exchange forward contract
300 billion

8. The current market price for any currency pair is referred to as ?
exchange one currency for another
6 weeks prior to Q/E
Spot price
The currency of the primary economic environment in which the legal entity operates

9. The difference in interest rate is referred to as...
Forward Points
Indirect quote
This means 1 Euro measured against US Dollars is worth $1.40
End of Period Rate (SCO-4 rate)

10. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
financial strength
12%
allow FX rate

11. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
value
1 Case = 2 pizzas
13%
adverse fluctuations

12. Hedging instrument used in Fair Value Hedge program is...
fx forward
CNY
functional currency
interest rate differential

13. The currency ticker for the Sweden Kroner is?
less
APL rate
This means 1 Euro measured against US Dollars is worth $1.40
SEK

14. 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...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
12%
Treasury Daily Spot Rate
is getting bigger

15. __________ is used for translation of foreign currency B/S to reporting currency
largest - It is open 24 hours a day - except weekends
B/S rate
Forward contracts and Options
foreign exchange forward contract

16. Hedging instrument used in cash flow program is...
British Pound - Australian Dollar - New Zealand Dollar - Euro
currency options and forward
direct
financial strength

17. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
exchange one currency for another
strengthens
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

18. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
strengthens
B/S rate
China - Malaysia - Colombia - Chile - Argentina
foreign exchange forward contract

19. Treasury is responsible for banking requirements - funding for the business and managing...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
financial risk
BRL
Currency of the respective operating unit's country

20. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Treasury Daily Spot Rate
lost
exchange one currency for another

21. The offset of revaluation is recorded to...
exchange rate
3 business days and beyond
F&O account 87503
downward slope

22. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
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
value
direct

23. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
This means 1 Euro measured against US Dollars is worth $1.40
1 unit
3 business days and beyond
actual weighted average contract rate

24. How is the hedge rate variance calculated?
CNY
The difference between hedge rate and final effective hedge rate
90%
actual weighted average contract rate

25. 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?
The calculation is the same - but instead of adding forward points you subtract
largest - It is open 24 hours a day - except weekends
1.40 - Because I would be able to buy more euros
Spot price

26. What is the trading in volume for FX?
13%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Spot price
3 -210 billion (3 trillion)

27. What rate is used on the P&L?
lost
Forward contracts and Options
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1 unit

28. All other currency trading with USD accounts for ____ of FX volume
21%
Effective Hedge rate
translation
interest rate differential

29. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Effective Hedge rate
three digit ticker symbol ex: USD - United States Dollar
valuable
1 share = 1/3 case

30. How far in advance do we hedge?
valuable
15 months in advance - layering on hedges through time
financial strength
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

31. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Treasury Daily Spot Rate
AUD
average rate
P&L activity

32. Revaluation can be hedged - while ___________ cannot be hedged
90%
There are FOUR
SFAS 52
translation

33. What is the purpose of hedging?
value
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
1.60 - Because you can buy more dollars

34. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1.60 - Because you can buy more dollars
strengthens

35. What are non-monetary accounts?
1 Case = 2 pizzas
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
foreign exchange forward contract
less

36. ____________ - foreign currency/rate = USD
BS account balances
3 -210 billion (3 trillion)
Spot price
Indirect quote

37. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Pound strengthens
90%
lost
15 months in advance - layering on hedges through time

38. Forward points is equal to...
spot price x interest differential
What is happening
financial strength
The difference between hedge rate and final effective hedge rate

39. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
adverse fluctuations
value
3 business days and beyond
downward slope

40. What are the exceptions to the ticker naming convention?
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
largest - It is open 24 hours a day - except weekends
more
MXN - EUR - CHF

41. What dictates minimum and maximum hedge percentages?
End of Period Rate (SCO-4 rate)
P&L activity
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
FX policy

42. What does it mean to hedge?
three digit ticker symbol ex: USD - United States Dollar
Mitigates risks by using hedging techniques
direct
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

43. The ticker symbol for the Chinese Yuan
CNY
13%
BRL
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

44. A Spot happens in...
two business days
three digit ticker symbol ex: USD - United States Dollar
There are FOUR
functional currency

45. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
F&O account 87503
an estimate of aggregate rate

46. The Foreign Exchange market is the __________ market in the world
Currency of the respective operating unit's country
value
BS account balances
largest - It is open 24 hours a day - except weekends

47. 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%
financial risk
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
downward slope

48. A forward happens in...
300 billion
3 business days and beyond
direct
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

49. When is hedge rate published?
foreign exchange forward contract
Government regulation and cost of hedging
exchange rate
6 weeks prior to Q/E

50. Direct quote- _____________=USD
China - Malaysia - Colombia - Chile - Argentina
exchange rate
foreign currency* rate
21%