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 stock-USD relationship means that stock price is losing ______ - so you are losing money
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
value
interest rate differential
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

2. 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
15 months in advance - layering on hedges through time
End of Period Rate (SCO-4 rate)
direct
Pound strengthens

3. What are the four major FX accounting guidances?
financial strength
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Used to hedge against variability in expected future cash flows
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

4. An ___________ expresses the value of one currency relative to another
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
interest rate differential
direct
exchange rate

5. What is the purpose of hedging?
The difference between hedge rate and final effective hedge rate
CNY
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Treasury Daily Spot Rate

6. The offset of revaluation is recorded to...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
F&O account 87503
interest rate differential
liquidity and cash

7. What is Revaluation?

8. Direct quote- _____________=USD
financial strength
adverse fluctuations
End of Period Rate (SCO-4 rate)
foreign currency* rate

9. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Indirect quote
actual weighted average contract rate
Mitigates risks by using hedging techniques
1.40 - Because I would be able to buy more euros

10. Where are revaluations done?
AUD
downward slope
End of Period Rate (SCO-4 rate)
Oracle

11. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
F&O account 87503
liquidity and cash
The currency of the primary economic environment in which the legal entity operates

12. What are monetary accounts?
Government regulation and cost of hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Indirect quote
financial risk

13. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Oracle
liquidity and cash
BRL
What is happening

14. A forward happens in...
Forward contracts and Options
3 business days and beyond
Mitigates risks by using hedging techniques
exchange one currency for another

15. The currency ticker for the Sweden Kroner is?
SEK
1 unit
Forward Points
spot price x interest differential

16. Australian currency code is...
currency options and forward
AUD
China - Malaysia - Colombia - Chile - Argentina
End of Period Rate (SCO-4 rate)

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

18. What are some of the reason not hedge at all or partially hedge in a few countries?
Pound strengthens
Currency in which the entity reports results externally
Government regulation and cost of hedging
average rate

19. A Spot happens in...
two business days
spot price x interest differential
Oracle
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

20. How do you read EUR-USD = 1.40
downward slope
This means 1 Euro measured against US Dollars is worth $1.40
12%
90%

21. Give some examples of countries where its hard to hedge?
There are FOUR
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
China - Malaysia - Colombia - Chile - Argentina
directly or indirectly

22. Forward points is equal to...
APL rate
End of Period Rate (SCO-4 rate)
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 x interest differential

23. In a downward slope that represents USD-JPY relationship a _____________ means that if you bough Japanese Yen at point A you made money at point B
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
translation
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
downward slope

24. What is Fair Value hedge program used for?
three digit ticker symbol ex: USD - United States Dollar
exchange one currency for another
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

25. What is cash flow used for?
15 months in advance - layering on hedges through time
F&O account 87503
Treasury Daily Spot Rate
Used to hedge against variability in expected future cash flows

26. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
BRL
APL rate
Currency in which the entity reports results externally
valuable

27. How is the price of the forward contract determined?
1 share = 1/3 case
Current market price - spot - plus or minus the difference between the interest rates of the two countries
interest rate differential
an estimate of aggregate rate

28. How many currencies use Direct method of quoting?
largest - It is open 24 hours a day - except weekends
1 Case = 2 pizzas
There are FOUR
5%

29. The timing of when we execute hedges drastically impacts the ____________ we achieve
Indirect quote
1 share = 1/3 case
average rate
Pound strengthens

30. The rules for adding or subtracting forward points depend on whether it is quoted...
There are FOUR
directly or indirectly
3 -210 billion (3 trillion)
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

31. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
financial strategy and financial policy
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
actual weighted average contract rate

32. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
value
90%
Forward contracts and Options
1 Case = 2 pizzas

33. 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...
Pound strengthens
is getting bigger
largest - It is open 24 hours a day - except weekends
1 unit

34. The Foreign Exchange market is the __________ market in the world
Current market price - spot - plus or minus the difference between the interest rates of the two countries
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
largest - It is open 24 hours a day - except weekends
90%

35. What rate is used to book daily transactions?
value
Treasury Daily Spot Rate
fx forward
1 share = 1/3 case

36. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
actual weighted average contract rate
less
Forward contracts and Options
interest rate differential

37. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
Currency of the respective operating unit's country
functional currency
15 months in advance - layering on hedges through time

38. What is the trading in volume for FX?
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
3 -210 billion (3 trillion)
functional currency

39. What is currency Translation?

40. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Pound strengthens
12%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
adverse fluctuations

41. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
largest - It is open 24 hours a day - except weekends
financial risk
Effective Hedge rate
exchange one currency for another

42. How far in advance do we hedge?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
15 months in advance - layering on hedges through time
financial strategy and financial policy
SEK

43. ____________ is used for translation of foreign currency P&L to Reporting currency?
1.60 - Because you can buy more dollars
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Forward Points
APL rate

44. ____________ - foreign currency/rate = USD
APL rate
5%
The currency of the primary economic environment in which the legal entity operates
Indirect quote

45. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
CNY
21%
downward slope

46. 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
value
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
adverse fluctuations

47. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
CNY
BRL
lost
exchange one currency for another

48. Forward points multiply the exchange rate by the...
B/S rate
Pound strengthens
interest rate differential
13%

49. The current market price for any currency pair is referred to as ?
three digit ticker symbol ex: USD - United States Dollar
Spot price
21%
30%

50. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
value
an estimate of aggregate 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%