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. The difference in interest rate is referred to as...
What is happening
fx forward
1 unit
Forward Points

2. 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%
lost
strengthens
1 share = 1/3 case

3. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
Indirect quote
adverse fluctuations
1.40 - Because I would be able to buy more euros

4. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
interest rate differential
Mitigates risks by using hedging techniques
valuable
300 billion

5. Hedging instrument used in Fair Value Hedge program is...
more
fx forward
1 Case = 2 pizzas
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

6. What is the purpose of hedging?
actual weighted average contract rate
30%
average rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

7. __________ is used for translation of foreign currency B/S to reporting currency
adverse fluctuations
B/S rate
lost
two business days

8. What are the exceptions to the ticker naming convention?
two business days
MXN - EUR - CHF
lost
fx forward

9. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
weakens
1 Case = 2 pizzas
5%
British Pound - Australian Dollar - New Zealand Dollar - Euro

10. Australian currency code is...
1.60 - Because you can buy more dollars
currency options and forward
AUD
adverse fluctuations

11. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
SFAS 52
direct
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
AUD

12. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
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 unit
B/S rate
value

13. Treasury's role is to identify risk - control to prevent erosion of...
90%
financial strength
15 months in advance - layering on hedges through time
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

14. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
15 months in advance - layering on hedges through time
P&L activity
Effective Hedge rate
1 unit

15. What is Revaluation?

Warning: Invalid argument supplied for foreach() in /var/www/html/basicversity.com/show_quiz.php on line 183

16. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
BRL
more
two business days

17. What is currency Translation?

Warning: Invalid argument supplied for foreach() in /var/www/html/basicversity.com/show_quiz.php on line 183

18. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Currency in which the entity reports results externally
financial strength
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
SFAS 52

19. A forward happens in...
1 share = 1/3 case
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
3 business days and beyond

20. What are some of the reason not hedge at all or partially hedge in a few countries?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1USD
Government regulation and cost of hedging
weakens

21. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
exchange rate
exchange one currency for another
weakens
The currency of the primary economic environment in which the legal entity operates

22. 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
financial strategy and financial policy
FX policy
CNY

23. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Forward contracts and Options
British Pound - Australian Dollar - New Zealand Dollar - Euro
less
Pound strengthens

24. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
MXN - EUR - CHF
1.60 - Because you can buy more dollars
functional currency
an estimate of aggregate rate

25. What is reporting currency?
Currency in which the entity reports results externally
functional currency
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
FX policy

26. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
strengthens
value
direct

27. Treasury is responsible for managing companies funds and determining the firms'...
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
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
three digit ticker symbol ex: USD - United States Dollar

28. What dictates minimum and maximum hedge percentages?
Currency in which the entity reports results externally
30%
Government regulation and cost of hedging
FX policy

29. What rate is used on the P&L?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
British Pound - Australian Dollar - New Zealand Dollar - Euro
average rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

30. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
90%
average rate
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

31. How far in advance do we hedge?
two business days
15 months in advance - layering on hedges through time
Currency in which the entity reports results externally
downward slope

32. What currencies use Direct method of quoting?
fx forward
exchange rate
B/S rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

33. The ticker symbol for the Chinese Yuan
exchange one currency for another
CNY
Treasury Daily Spot Rate
direct

34. How is the hedge rate variance calculated?
exchange one currency for another
The difference between hedge rate and final effective hedge rate
spot price x interest differential
15 months in advance - layering on hedges through time

35. 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
financial strategy and financial policy
Pound strengthens
Forward Points
Currency of the respective operating unit's country

36. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
MXN - EUR - CHF
financial strength
1 unit
largest - It is open 24 hours a day - except weekends

37. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1.40 - Because I would be able to buy more euros
British Pound - Australian Dollar - New Zealand Dollar - Euro

38. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
F&O account 87503
spot price x interest differential
British Pound - Australian Dollar - New Zealand Dollar - Euro

39. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
What is happening
Currency in which the entity reports results externally
three digit ticker symbol ex: USD - United States Dollar

40. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
BS account balances
direct
FX policy

41. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
BS account balances
fx forward
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

42. How many currencies use Direct method of quoting?
weakens
There are FOUR
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
China - Malaysia - Colombia - Chile - Argentina

43. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
China - Malaysia - Colombia - Chile - Argentina
average rate
BRL
three digit ticker symbol ex: USD - United States Dollar

44. What are monetary accounts?
translation
BS account balances
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
lost

45. Forward points multiply the exchange rate by the...
F&O account 87503
interest rate differential
FX policy
Used to hedge against variability in expected future cash flows

46. What instruments do we use to hedge?
spot price x interest differential
1.40 - Because I would be able to buy more euros
1 Case = 2 pizzas
Forward contracts and Options

47. What is Fair Value hedge program used for?
300 billion
two business days
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
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

48. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
more
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Used to hedge against variability in expected future cash flows
exchange one currency for another

49. A Spot happens in...
spot price x interest differential
allow FX rate
two business days
Government regulation and cost of hedging

50. In general EUR-USD is involved in roughly ___ of all FX volume
B/S rate
directly or indirectly
90%
SFAS 52