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. Treasury is responsible for managing companies funds and determining the firms'...
The currency of the primary economic environment in which the legal entity operates
financial strategy and financial policy
There are FOUR
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

2. What does it mean to hedge?
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
BRL
adverse fluctuations

3. In general EUR-USD is involved in roughly ___ of all FX volume
90%
The calculation is the same - but instead of adding forward points you subtract
BS account balances
British Pound - Australian Dollar - New Zealand Dollar - Euro

4. Australian currency code is...
AUD
actual weighted average contract rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
more

5. How is the price of the forward contract determined?
5%
Used to hedge against variability in expected future cash flows
The calculation is the same - but instead of adding forward points you subtract
Current market price - spot - plus or minus the difference between the interest rates of the two countries

6. Treasury is responsible for banking requirements - funding for the business and managing...
valuable
1 unit
financial risk
two business days

7. Hedging instrument used in Fair Value Hedge program is...
interest rate differential
exchange one currency for another
fx forward
three digit ticker symbol ex: USD - United States Dollar

8. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
AUD
Forward Points
6 weeks prior to Q/E

9. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
foreign exchange forward contract
3 business days and beyond
Used to hedge against variability in expected future cash flows

10. How do you read EUR-USD = 1.40
12%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
This means 1 Euro measured against US Dollars is worth $1.40
foreign currency* rate

11. The ticker symbol for the Chinese Yuan
CNY
1USD
weakens
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

12. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
less
Currency of the respective operating unit's country
exchange one currency for another

13. 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...
functional currency
is getting bigger
21%
Currency of the respective operating unit's country

14. __________ is used for translation of foreign currency B/S to reporting currency
3 -210 billion (3 trillion)
Pound strengthens
B/S rate
liquidity and cash

15. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
This means 1 Euro measured against US Dollars is worth $1.40
weakens
MXN - EUR - CHF
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

16. What is Fair Value hedge program used for?
Spot price
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
1 unit

17. Where are revaluations done?
Oracle
BRL
China - Malaysia - Colombia - Chile - Argentina
15 months in advance - layering on hedges through time

18. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Pound strengthens
Government regulation and cost of hedging
allow FX rate
P&L activity

19. All other currency trading with USD accounts for ____ of FX volume
APL rate
21%
foreign currency* rate
financial strategy and financial policy

20. 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?
Used to hedge against variability in expected future cash flows
5%
12%
functional currency

21. Revaluation can be hedged - while ___________ cannot be hedged
1 share = 1/3 case
is getting bigger
Pound strengthens
translation

22. What dictates minimum and maximum hedge percentages?
SEK
exchange rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
FX policy

23. GBP-USD account for ____ of trading FX volume
12%
Treasury Daily Spot Rate
This means 1 Euro measured against US Dollars is worth $1.40
average rate

24. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
weakens
lost
MXN - EUR - CHF

25. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
exchange one currency for another
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
actual weighted average contract rate
less

26. Give an example of one way to hedge a price increase in gas prices...
translation
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

27. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
strengthens
three digit ticker symbol ex: USD - United States Dollar
What is happening
P&L activity

28. The Foreign Exchange market is the __________ market in the world
12%
valuable
Mitigates risks by using hedging techniques
largest - It is open 24 hours a day - except weekends

29. What rate is used on the balance sheet?
interest rate differential
adverse fluctuations
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
End of Period Rate (SCO-4 rate)

30. ____________ - foreign currency/rate = USD
1 Case = 2 pizzas
average rate
SFAS 52
Indirect quote

31. If 1 pizza = 15 USD then ____ = 1/15 pizza
Mitigates risks by using hedging techniques
two business days
currency options and forward
1USD

32. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
an estimate of aggregate rate
Currency in which the entity reports results externally
exchange one currency for another

33. The offset of revaluation is recorded to...
This means 1 Euro measured against US Dollars is worth $1.40
F&O account 87503
BS account balances
5%

34. What is reporting currency?
Currency of the respective operating unit's country
Spot price
lost
Currency in which the entity reports results externally

35. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
13%
strengthens
MXN - EUR - CHF

36. How far in advance do we hedge?
financial risk
90%
15 months in advance - layering on hedges through time
liquidity and cash

37. B/S rate is used for revaluation of foreign currency transaction to...
British Pound - Australian Dollar - New Zealand Dollar - Euro
direct
value
functional currency

38. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
1 unit
exchange one currency for another
Oracle

39. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
90%
two business days
financial risk

40. What are non-monetary accounts?
6 weeks prior to Q/E
less
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
valuable

41. An ___________ expresses the value of one currency relative to another
P&L activity
3 -210 billion (3 trillion)
exchange rate
liquidity and cash

42. What would happen if the US interest rate was bigger than Mexico?
downward slope
financial risk
The calculation is the same - but instead of adding forward points you subtract
Currency in which the entity reports results externally

43. The current market price for any currency pair is referred to as ?
Spot price
300 billion
Used to hedge against variability in expected future cash flows
strengthens

44. A Spot happens in...
15 months in advance - layering on hedges through time
largest - It is open 24 hours a day - except weekends
two business days
translation

45. Forward points multiply the exchange rate by the...
interest rate differential
an estimate of aggregate rate
90%
Forward Points

46. 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
functional currency
SEK
1 share = 1/3 case
Pound strengthens

47. The difference in interest rate is referred to as...
Forward Points
Currency of the respective operating unit's country
APL rate
5%

48. What currencies use Direct method of quoting?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Currency in which the entity reports results externally
British Pound - Australian Dollar - New Zealand Dollar - Euro
P&L activity

49. What rate is used on the P&L?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Treasury Daily Spot Rate
The calculation is the same - but instead of adding forward points you subtract
3 -210 billion (3 trillion)

50. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
directly or indirectly
valuable
strengthens
1 Case = 2 pizzas