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. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
translation
weakens
P&L activity
6 weeks prior to Q/E

2. Hedging instrument used in Fair Value Hedge program is...
This means 1 Euro measured against US Dollars is worth $1.40
fx forward
1USD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

3. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
exchange rate
value
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

4. The ticker symbol for the Chinese Yuan
1 share = 1/3 case
strengthens
CNY
financial strength

5. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
SFAS 52
largest - It is open 24 hours a day - except weekends
strengthens
more

6. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
P&L activity
What is happening
exchange rate
Spot price

7. What is reporting currency?
downward slope
Currency in which the entity reports results externally
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

8. The rules for adding or subtracting forward points depend on whether it is quoted...
translation
directly or indirectly
strengthens
Forward Points

9. Australian currency code is...
foreign exchange forward contract
liquidity and cash
strengthens
AUD

10. What is local currency?

11. What are the exceptions to the ticker naming convention?
an estimate of aggregate rate
Currency in which the entity reports results externally
MXN - EUR - CHF
currency options and forward

12. USD-JPY account for ____ of trading FX volume
13%
Currency in which the entity reports results externally
less
APL rate

13. GBP-USD account for ____ of trading FX volume
Government regulation and cost of hedging
valuable
adverse fluctuations
12%

14. When is hedge rate published?
6 weeks prior to Q/E
This means 1 Euro measured against US Dollars is worth $1.40
financial risk
translation

15. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
financial risk
foreign exchange forward contract
more
exchange one currency for another

16. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
13%
12%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
three digit ticker symbol ex: USD - United States Dollar

17. In general EUR-USD is involved in roughly ___ of all FX volume
liquidity and cash
90%
BRL
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

18. If 1 pizza = 15 USD then ____ = 1/15 pizza
Currency of the respective operating unit's country
1USD
downward slope
two business days

19. A Spot happens in...
China - Malaysia - Colombia - Chile - Argentina
two business days
three digit ticker symbol ex: USD - United States Dollar
1 share = 1/3 case

20. Give some examples of countries where its hard to hedge?
B/S rate
valuable
China - Malaysia - Colombia - Chile - Argentina
13%

21. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
exchange rate
less
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.

22. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
AUD
exchange one currency for another
interest rate differential
Treasury Daily Spot Rate

23. What rate is used on the P&L?
6 weeks prior to Q/E
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Forward Points

24. What instruments do we use to hedge?
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
F&O account 87503
B/S rate

25. What dictates minimum and maximum hedge percentages?
spot price x interest differential
5%
FX policy
Treasury Daily Spot Rate

26. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
more
6 weeks prior to Q/E
spot price x interest differential

27. The current market price for any currency pair is referred to as ?
Pound strengthens
Spot price
300 billion
financial risk

28. Hedging instrument used in cash flow program is...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
currency options and forward
BS account balances
Current market price - spot - plus or minus the difference between the interest rates of the two countries

29. The difference in interest rate is referred to as...
Spot price
Forward Points
spot price x interest differential
foreign exchange forward contract

30. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
strengthens
liquidity and cash
15 months in advance - layering on hedges through time

31. ____________ should be denominated in the currency they will either be paid or received in...
SFAS 52
1USD
BS account balances
Current market price - spot - plus or minus the difference between the interest rates of the two countries

32. All other currency trading with USD accounts for ____ of FX volume
foreign currency* rate
21%
MXN - EUR - CHF
1 share = 1/3 case

33. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
largest - It is open 24 hours a day - except weekends
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
1.60 - Because you can buy more dollars
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

34. How far in advance do we hedge?
15 months in advance - layering on hedges through time
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
allow FX rate
Spot price

35. Where are revaluations done?
Oracle
is getting bigger
F&O account 87503
21%

36. The Foreign Exchange market is the __________ market in the world
currency options and forward
translation
allow FX rate
largest - It is open 24 hours a day - except weekends

37. The currency ticker for the Sweden Kroner is?
5%
Effective Hedge rate
SEK
15 months in advance - layering on hedges through time

38. Treasury ensures that companies have ____________ to meet its obligations
Government regulation and cost of hedging
liquidity and cash
Currency of the respective operating unit's country
5%

39. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
90%
FX policy
SFAS 52
Currency in which the entity reports results externally

40. What does it mean to hedge?
three digit ticker symbol ex: USD - United States Dollar
Indirect quote
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

41. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
The calculation is the same - but instead of adding forward points you subtract
functional currency
actual weighted average contract rate
3 -210 billion (3 trillion)

42. A forward happens in...
British Pound - Australian Dollar - New Zealand Dollar - Euro
is getting bigger
Pound strengthens
3 business days and beyond

43. 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?
Currency in which the entity reports results externally
British Pound - Australian Dollar - New Zealand Dollar - Euro
1.40 - Because I would be able to buy more euros
allow FX rate

44. The timing of when we execute hedges drastically impacts the ____________ we achieve
downward slope
1.60 - Because you can buy more dollars
China - Malaysia - Colombia - Chile - Argentina
average rate

45. What rate is used to book daily transactions?
Used to hedge against variability in expected future cash flows
Treasury Daily Spot Rate
P&L activity
This means 1 Euro measured against US Dollars is worth $1.40

46. What is Revaluation?

47. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
average rate
strengthens
lost

48. How many currencies use Direct method of quoting?
more
There are FOUR
value
Pound strengthens

49. An ___________ expresses the value of one currency relative to another
The calculation is the same - but instead of adding forward points you subtract
exchange rate
Currency of the respective operating unit's country
average rate

50. What is the purpose of hedging?
P&L activity
direct
CNY
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing