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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. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
3 business days and beyond
financial risk
Currency of the respective operating unit's country

2. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
21%
foreign exchange forward contract

3. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
exchange rate
more
largest - It is open 24 hours a day - except weekends
P&L activity

4. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
1 Case = 2 pizzas
6 weeks prior to Q/E
What is happening
spot price x interest differential

5. Give some examples of countries where its hard to hedge?
more
actual weighted average contract rate
lost
China - Malaysia - Colombia - Chile - Argentina

6. The offset of revaluation is recorded to...
90%
F&O account 87503
15 months in advance - layering on hedges through time
B/S rate

7. The timing of when we execute hedges drastically impacts the ____________ we achieve
actual weighted average contract rate
FX policy
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
average rate

8. What are non-monetary accounts?
value
Mitigates risks by using hedging techniques
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
6 weeks prior to Q/E

9. EUR-USD currency pair accounts for about ____ of all FX volume
12%
Indirect quote
30%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

10. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
an estimate of aggregate rate
Forward contracts and Options
End of Period Rate (SCO-4 rate)

11. In general EUR-USD is involved in roughly ___ of all FX volume
adverse fluctuations
exchange one currency for another
P&L activity
90%

12. Where are revaluations done?
Oracle
The currency of the primary economic environment in which the legal entity operates
currency options and forward
spot price x interest differential

13. All other currency trading with USD accounts for ____ of FX volume
300 billion
two business days
21%
SFAS 52

14. What dictates minimum and maximum hedge percentages?
exchange rate
FX policy
spot price x interest differential
SFAS 52

15. Forward points multiply the exchange rate by the...
exchange one currency for another
This means 1 Euro measured against US Dollars is worth $1.40
1.40 - Because I would be able to buy more euros
interest rate differential

16. What does it mean to hedge?
directly or indirectly
F&O account 87503
interest rate differential
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

17. What is Functional Currency?
exchange one currency for another
Treasury Daily Spot Rate
MXN - EUR - CHF
The currency of the primary economic environment in which the legal entity operates

18. What is the ticker symbol for Brazilian Real?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Oracle
BRL

19. Hedging instrument used in cash flow program is...
interest rate differential
three digit ticker symbol ex: USD - United States Dollar
30%
currency options and forward

20. What rate is used on the P&L?
15 months in advance - layering on hedges through time
Oracle
financial risk
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

21. 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?
financial risk
1.40 - Because I would be able to buy more euros
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

22. What is local currency?

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23. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
6 weeks prior to Q/E
12%
1.40 - Because I would be able to buy more euros

24. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
direct
currency options and forward
3 -210 billion (3 trillion)

25. Hedging instrument used in Fair Value Hedge program is...
Spot price
15 months in advance - layering on hedges through time
fx forward
exchange one currency for another

26. 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
3 -210 billion (3 trillion)
financial strength
What is happening
Pound strengthens

27. Direct quote- _____________=USD
BRL
foreign currency* rate
financial strength
90%

28. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
Government regulation and cost of hedging
15 months in advance - layering on hedges through time
direct

29. What is the trading in volume for FX?
12%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
3 -210 billion (3 trillion)
financial risk

30. Treasury is responsible for managing companies funds and determining the firms'...
13%
financial strategy and financial policy
There are FOUR
Currency of the respective operating unit's country

31. When is hedge rate published?
financial risk
Forward contracts and Options
6 weeks prior to Q/E
allow FX rate

32. The Foreign Exchange market is the __________ market in the world
APL rate
1USD
exchange one currency for another
largest - It is open 24 hours a day - except weekends

33. The ticker symbol for the Chinese Yuan
CNY
1 share = 1/3 case
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
fx forward

34. A forward happens in...
interest rate differential
is getting bigger
3 business days and beyond
two business days

35. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
B/S rate
Government regulation and cost of hedging
APL rate
actual weighted average contract rate

36. ____________ should be denominated in the currency they will either be paid or received in...
1 share = 1/3 case
BS account balances
APL rate
Treasury Daily Spot Rate

37. USD-JPY account for ____ of trading FX volume
functional currency
13%
lost
direct

38. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
13%
three digit ticker symbol ex: USD - United States Dollar
liquidity and cash
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

39. Treasury's role is to identify risk - control to prevent erosion of...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
financial strength
direct
two business days

40. What is cash flow used for?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
The difference between hedge rate and final effective hedge rate
Used to hedge against variability in expected future cash flows
valuable

41. What are monetary accounts?
Effective Hedge rate
two business days
financial strategy and financial policy
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

42. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
value
foreign exchange forward contract
Mitigates risks by using hedging techniques
strengthens

43. Forward points is equal to...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
functional currency
spot price x interest differential
The calculation is the same - but instead of adding forward points you subtract

44. What is Revaluation?

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45. Treasury is responsible for banking requirements - funding for the business and managing...
1USD
financial risk
5%
AUD

46. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
financial risk
BRL
valuable

47. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Used to hedge against variability in expected future cash flows
average rate
value
B/S rate

48. The currency ticker for the Sweden Kroner is?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1USD
SEK
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

49. GBP-USD account for ____ of trading FX volume
12%
translation
AUD
The difference between hedge rate and final effective hedge rate

50. 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?
actual weighted average contract rate
financial risk
interest rate differential
5%