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. What is the trading in volume for FX?
3 -210 billion (3 trillion)
value
SFAS 52
fx forward

2. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
What is happening
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Spot price

3. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
F&O account 87503
lost
British Pound - Australian Dollar - New Zealand Dollar - Euro
valuable

4. The rules for adding or subtracting forward points depend on whether it is quoted...
Pound strengthens
functional currency
directly or indirectly
exchange rate

5. The Foreign Exchange market is the __________ market in the world
P&L activity
SEK
largest - It is open 24 hours a day - except weekends
1 share = 1/3 case

6. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
downward slope
average rate
SFAS 52
Indirect quote

7. 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
5%
average rate
1.60 - Because you can buy more dollars
Pound strengthens

8. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
This means 1 Euro measured against US Dollars is worth $1.40
1 share = 1/3 case
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
What is happening

9. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
1USD
There are FOUR
Spot price

10. 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
BRL
Forward Points
Oracle

11. 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?
BRL
lost
1.40 - Because I would be able to buy more euros
1 unit

12. What are monetary accounts?
F&O account 87503
fx forward
foreign exchange forward contract
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

13. Revaluation can be hedged - while ___________ cannot be hedged
liquidity and cash
21%
British Pound - Australian Dollar - New Zealand Dollar - Euro
translation

14. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
three digit ticker symbol ex: USD - United States Dollar
1.60 - Because you can buy more dollars
BS account balances
translation

15. Treasury is responsible for banking requirements - funding for the business and managing...
currency options and forward
financial risk
valuable
Spot price

16. What is Fair Value hedge program used for?
currency options and forward
weakens
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1.60 - Because you can buy more dollars

17. In general EUR-USD is involved in roughly ___ of all FX volume
SFAS 52
financial strength
financial strategy and financial policy
90%

18. What instruments do we use to hedge?
Forward contracts and Options
Used to hedge against variability in expected future cash flows
End of Period Rate (SCO-4 rate)
3 -210 billion (3 trillion)

19. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
exchange one currency for another
The currency of the primary economic environment in which the legal entity operates
financial risk
Effective Hedge rate

20. What rate is used to book daily transactions?
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
300 billion
Treasury Daily Spot Rate
liquidity and cash

21. The offset of revaluation is recorded to...
Used to hedge against variability in expected future cash flows
F&O account 87503
exchange one currency for another
liquidity and cash

22. What currencies use Direct method of quoting?
MXN - EUR - CHF
British Pound - Australian Dollar - New Zealand Dollar - Euro
direct
two business days

23. What dictates minimum and maximum hedge percentages?
FX policy
China - Malaysia - Colombia - Chile - Argentina
The calculation is the same - but instead of adding forward points you subtract
3 -210 billion (3 trillion)

24. If 1 pizza = 15 USD then ____ = 1/15 pizza
1 unit
exchange rate
value
1USD

25. What is currency Translation?

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26. How do you read EUR-USD = 1.40
exchange rate
B/S rate
This means 1 Euro measured against US Dollars is worth $1.40
British Pound - Australian Dollar - New Zealand Dollar - Euro

27. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Forward contracts and Options
British Pound - Australian Dollar - New Zealand Dollar - Euro
P&L activity
Forward Points

28. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Currency in which the entity reports results externally
financial risk
Used to hedge against variability in expected future cash flows

29. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
currency options and forward
value
Used to hedge against variability in expected future cash flows
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

30. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
1 share = 1/3 case
largest - It is open 24 hours a day - except weekends
actual weighted average contract rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

31. Give some examples of countries where its hard to hedge?
less
China - Malaysia - Colombia - Chile - Argentina
The difference between hedge rate and final effective hedge rate
3 business days and beyond

32. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
BS account balances
financial strength
spot price x interest differential

33. What is reporting currency?
financial strategy and financial policy
is getting bigger
Currency in which the entity reports results externally
financial risk

34. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
exchange one currency for another
strengthens
adverse fluctuations
Forward contracts and Options

35. What are the exceptions to the ticker naming convention?
What is happening
MXN - EUR - CHF
The difference between hedge rate and final effective hedge rate
The calculation is the same - but instead of adding forward points you subtract

36. USD-JPY account for ____ of trading FX volume
13%
largest - It is open 24 hours a day - except weekends
functional currency
direct

37. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
End of Period Rate (SCO-4 rate)
BRL

38. When is hedge rate published?
China - Malaysia - Colombia - Chile - Argentina
downward slope
6 weeks prior to Q/E
exchange one currency for another

39. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
AUD
value
Forward contracts and Options

40. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
more
strengthens
foreign currency* rate

41. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
5%
FX policy
translation

42. A Spot happens in...
actual weighted average contract rate
1.60 - Because you can buy more dollars
two business days
3 business days and beyond

43. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
SFAS 52
spot price x interest differential
1.60 - Because you can buy more dollars
B/S rate

44. What is Functional Currency?
exchange one currency for another
interest rate differential
directly or indirectly
The currency of the primary economic environment in which the legal entity operates

45. 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...
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
two business days
is getting bigger
allow FX rate

46. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
interest rate differential
1.60 - Because you can buy more dollars
exchange rate
an estimate of aggregate rate

47. The currency ticker for the Sweden Kroner is?
The calculation is the same - but instead of adding forward points you subtract
SEK
China - Malaysia - Colombia - Chile - Argentina
Forward contracts and Options

48. Treasury ensures that companies have ____________ to meet its obligations
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
interest rate differential
F&O account 87503
liquidity and cash

49. What is the ticker symbol for Brazilian Real?
This means 1 Euro measured against US Dollars is worth $1.40
End of Period Rate (SCO-4 rate)
BRL
SEK

50. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
allow FX rate
an estimate of aggregate rate
foreign exchange forward contract
adverse fluctuations