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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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 cash flow used for?
weakens
3 business days and beyond
Used to hedge against variability in expected future cash flows
exchange rate

2. How is the price of the forward contract determined?
Spot price
Current market price - spot - plus or minus the difference between the interest rates of the two countries
more
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

3. What are some of the reason not hedge at all or partially hedge in a few countries?
directly or indirectly
two business days
Government regulation and cost of hedging
15 months in advance - layering on hedges through time

4. What rate is used to book daily transactions?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
SEK
Treasury Daily Spot Rate
allow FX 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?
Used to hedge against variability in expected future cash flows
value
BS account balances
1.40 - Because I would be able to buy more euros

6. The offset of revaluation is recorded to...
F&O account 87503
valuable
3 -210 billion (3 trillion)
1USD

7. ____________ - foreign currency/rate = USD
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro
Indirect quote
1 unit

8. What dictates minimum and maximum hedge percentages?
This means 1 Euro measured against US Dollars is worth $1.40
FX policy
1.60 - Because you can buy more dollars
British Pound - Australian Dollar - New Zealand Dollar - Euro

9. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
15 months in advance - layering on hedges through time
1 share = 1/3 case
P&L activity
APL rate

10. What is the trading in volume for FX?
Pound strengthens
13%
3 -210 billion (3 trillion)
6 weeks prior to Q/E

11. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
three digit ticker symbol ex: USD - United States Dollar
1.60 - Because you can buy more dollars
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

12. What is the ticker symbol for Brazilian Real?
MXN - EUR - CHF
Effective Hedge rate
foreign exchange forward contract
BRL

13. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
Oracle
financial strategy and financial policy
30%

14. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
3 business days and beyond
valuable
two business days
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

15. In general EUR-USD is involved in roughly ___ of all FX volume
directly or indirectly
actual weighted average contract rate
The currency of the primary economic environment in which the legal entity operates
90%

16. Australian currency code is...
F&O account 87503
less
downward slope
AUD

17. US Treasuries is the second highest trading volume accounting for...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
British Pound - Australian Dollar - New Zealand Dollar - Euro
F&O account 87503
300 billion

18. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
The currency of the primary economic environment in which the legal entity operates
spot price x interest differential
BS account balances
exchange one currency for another

19. The difference in interest rate is referred to as...
AUD
Oracle
British Pound - Australian Dollar - New Zealand Dollar - Euro
Forward Points

20. Revaluation can be hedged - while ___________ cannot be hedged
21%
translation
foreign exchange forward contract
liquidity and cash

21. How does treasury accomplish its purpose?
Effective Hedge rate
interest rate differential
Government regulation and cost of hedging
Mitigates risks by using hedging techniques

22. What is the purpose of hedging?
5%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
APL rate
BS account balances

23. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
value
strengthens
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Effective Hedge rate

24. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
CNY
foreign currency* rate

25. Treasury is responsible for banking requirements - funding for the business and managing...
interest rate differential
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
two business days
financial risk

26. What are monetary accounts?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
direct

27. ____________ should be denominated in the currency they will either be paid or received in...
valuable
more
BS account balances
B/S rate

28. Treasury is responsible for managing companies funds and determining the firms'...
China - Malaysia - Colombia - Chile - Argentina
financial strategy and financial policy
21%
BS account balances

29. What rate is used on the balance sheet?
foreign currency* rate
End of Period Rate (SCO-4 rate)
financial strategy and financial policy
Pound strengthens

30. What instruments do we use to hedge?
SFAS 52
Forward contracts and Options
more
12%

31. The currency ticker for the Sweden Kroner is?
300 billion
SEK
The currency of the primary economic environment in which the legal entity operates
spot price x interest differential

32. Where are revaluations done?
less
End of Period Rate (SCO-4 rate)
fx forward
Oracle

33. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Effective Hedge rate
6 weeks prior to Q/E
allow FX rate
weakens

34. A Spot happens in...
Treasury Daily Spot Rate
two business days
directly or indirectly
There are FOUR

35. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
spot price x interest differential
financial risk
foreign exchange forward contract
interest rate differential

36. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
What is happening
SEK
Oracle

37. The ticker symbol for the Chinese Yuan
Indirect quote
functional currency
CNY
currency options and forward

38. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Currency in which the entity reports results externally
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Effective Hedge rate

39. 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
exchange one currency for another
Current market price - spot - plus or minus the difference between the interest rates of the two countries
What is happening

40. GBP-USD account for ____ of trading FX volume
Government regulation and cost of hedging
B/S rate
What is happening
12%

41. Hedging instrument used in cash flow program is...
downward slope
currency options and forward
Indirect quote
foreign exchange forward contract

42. If 1 pizza = 15 USD then ____ = 1/15 pizza
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
an estimate of aggregate rate
1USD
BS account balances

43. 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
3 -210 billion (3 trillion)
Currency in which the entity reports results externally
allow FX rate
30%

44. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
Treasury Daily Spot Rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
15 months in advance - layering on hedges through time

45. When is hedge rate published?
6 weeks prior to Q/E
SFAS 52
Oracle
1 Case = 2 pizzas

46. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
value
financial strategy and financial policy
strengthens
less

47. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
B/S rate
3 -210 billion (3 trillion)
downward slope
direct

48. How many currencies use Direct method of quoting?
There are FOUR
3 business days and beyond
90%
Mitigates risks by using hedging techniques

49. What is local currency?

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50. USD-JPY account for ____ of trading FX volume
FX policy
13%
AUD
12%

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Foreign Exchange Essentials

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