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. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
financial strategy and financial policy
valuable
lost
foreign currency* rate

2. How is the hedge rate variance calculated?
weakens
foreign exchange forward contract
6 weeks prior to Q/E
The difference between hedge rate and final effective hedge rate

3. The current market price for any currency pair is referred to as ?
translation
is getting bigger
Mitigates risks by using hedging techniques
Spot price

4. What are non-monetary accounts?
End of Period Rate (SCO-4 rate)
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
3 -210 billion (3 trillion)

5. What is Revaluation?

6. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Oracle
more
less
Mitigates risks by using hedging techniques

7. 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?
MXN - EUR - CHF
directly or indirectly
21%
1.40 - Because I would be able to buy more euros

8. Hedging instrument used in cash flow program is...
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 the change in fair value (revaluation) of monetary assets & liabilities
currency options and forward
Oracle

9. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
exchange one currency for another
Current market price - spot - plus or minus the difference between the interest rates of the two countries
exchange rate

10. What is reporting currency?
British Pound - Australian Dollar - New Zealand Dollar - Euro
allow FX rate
21%
Currency in which the entity reports results externally

11. The offset of revaluation is recorded to...
21%
China - Malaysia - Colombia - Chile - Argentina
F&O account 87503
is getting bigger

12. The difference in interest rate is referred to as...
Oracle
Forward Points
30%
Pound strengthens

13. What does it mean to hedge?
Forward Points
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 share = 1/3 case
Indirect quote

14. Give some examples of countries where its hard to hedge?
21%
FX policy
3 business days and beyond
China - Malaysia - Colombia - Chile - Argentina

15. 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?
Effective Hedge rate
5%
AUD
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

16. Australian currency code is...
90%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The currency of the primary economic environment in which the legal entity operates
AUD

17. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
less
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
exchange one currency for another
downward slope

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

19. The timing of when we execute hedges drastically impacts the ____________ we achieve
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
Spot price
average rate

20. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
Spot price
B/S rate
Pound strengthens

21. How far in advance do we hedge?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Current market price - spot - plus or minus the difference between the interest rates of the two countries
15 months in advance - layering on hedges through time
5%

22. ____________ is used for translation of foreign currency P&L to Reporting currency?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
MXN - EUR - CHF
APL rate
translation

23. Treasury is responsible for banking requirements - funding for the business and managing...
less
financial risk
BS account balances
an estimate of aggregate rate

24. All other currency trading with USD accounts for ____ of FX volume
Oracle
Currency in which the entity reports results externally
APL rate
21%

25. How does treasury accomplish its purpose?
British Pound - Australian Dollar - New Zealand Dollar - Euro
1 share = 1/3 case
Spot price
Mitigates risks by using hedging techniques

26. 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...
directly or indirectly
is getting bigger
lost
foreign exchange forward contract

27. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
China - Malaysia - Colombia - Chile - Argentina
average rate

28. What is Fair Value hedge program used for?
FX 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
Forward Points
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

29. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
MXN - EUR - CHF
1 Case = 2 pizzas
The difference between hedge rate and final effective hedge rate
FX policy

30. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
British Pound - Australian Dollar - New Zealand Dollar - Euro
1.60 - Because you can buy more dollars
21%
Mitigates risks by using hedging techniques

31. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
China - Malaysia - Colombia - Chile - Argentina
The difference between hedge rate and final effective hedge rate
an estimate of aggregate rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

32. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
exchange one currency for another
12%
direct
three digit ticker symbol ex: USD - United States Dollar

33. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
30%
APL rate
SFAS 52

34. Where are revaluations done?
Indirect quote
BS account balances
Oracle
foreign currency* rate

35. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
P&L activity
currency options and forward
Pound strengthens
value

36. How do you read EUR-USD = 1.40
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
This means 1 Euro measured against US Dollars is worth $1.40
6 weeks prior to Q/E

37. USD-JPY account for ____ of trading FX volume
Forward Points
1.60 - Because you can buy more dollars
Effective Hedge rate
13%

38. How many currencies use Direct method of quoting?
There are FOUR
Currency of the respective operating unit's country
adverse fluctuations
Oracle

39. US Treasuries is the second highest trading volume accounting for...
an estimate of aggregate rate
300 billion
Oracle
exchange one currency for another

40. The ticker symbol for the Chinese Yuan
functional currency
CNY
SEK
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

41. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Government regulation and cost of hedging
1 share = 1/3 case
1 Case = 2 pizzas

42. The rules for adding or subtracting forward points depend on whether it is quoted...
Currency of the respective operating unit's country
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
direct
directly or indirectly

43. What are the four major FX accounting guidances?
The difference between hedge rate and final effective hedge rate
Forward Points
downward slope
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

44. ____________ should be denominated in the currency they will either be paid or received in...
Oracle
liquidity and cash
BS account balances
This means 1 Euro measured against US Dollars is worth $1.40

45. Forward points multiply the exchange rate by the...
1 unit
interest rate differential
F&O account 87503
foreign exchange forward contract

46. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
interest rate differential
Indirect quote
What is happening
3 business days and beyond

47. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Currency of the respective operating unit's country
directly or indirectly
3 business days and beyond
actual weighted average contract rate

48. What is local currency?

49. What dictates minimum and maximum hedge percentages?
is getting bigger
FX policy
exchange one currency for another
What is happening

50. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
6 weeks prior to Q/E
average rate
1 unit
Mitigates risks by using hedging techniques