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. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
SFAS 52
average rate
Mitigates risks by using hedging techniques

2. 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
two business days
300 billion
13%

3. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
BRL
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

4. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
P&L activity
300 billion
financial strength
value

5. What is Fair Value hedge program used for?
APL rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
What is happening
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

6. Treasury is responsible for managing companies funds and determining the firms'...
Spot price
three digit ticker symbol ex: USD - United States Dollar
financial risk
financial strategy and financial policy

7. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
This means 1 Euro measured against US Dollars is worth $1.40
Spot price
financial strategy and financial policy

8. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
1 share = 1/3 case
SFAS 52
exchange rate
FX policy

9. What instruments do we use to hedge?
more
This means 1 Euro measured against US Dollars is worth $1.40
CNY
Forward contracts and Options

10. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
direct
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
1 Case = 2 pizzas
Forward contracts and Options

11. USD-JPY account for ____ of trading FX volume
13%
90%
is getting bigger
Forward Points

12. What are non-monetary accounts?
This means 1 Euro measured against US Dollars is worth $1.40
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1USD
weakens

13. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
strengthens
The difference between hedge rate and final effective hedge rate
AUD
direct

14. 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?
1 Case = 2 pizzas
largest - It is open 24 hours a day - except weekends
directly or indirectly
1.40 - Because I would be able to buy more euros

15. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
financial risk
less
15 months in advance - layering on hedges through time

16. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
more
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
MXN - EUR - CHF

17. US Treasuries is the second highest trading volume accounting for...
300 billion
This means 1 Euro measured against US Dollars is worth $1.40
What is happening
There are FOUR

18. What is the ticker symbol for Brazilian Real?
The difference between hedge rate and final effective hedge rate
BRL
90%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

19. What rate is used to book daily transactions?
3 business days and beyond
Forward contracts and Options
Treasury Daily Spot Rate
B/S rate

20. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
functional currency
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
APL rate
foreign exchange forward contract

21. What is reporting currency?
This means 1 Euro measured against US Dollars is worth $1.40
an estimate of aggregate rate
Currency in which the entity reports results externally
direct

22. What are some of the reason not hedge at all or partially hedge in a few countries?
an estimate of aggregate rate
Government regulation and cost of hedging
China - Malaysia - Colombia - Chile - Argentina
BS account balances

23. Revaluation can be hedged - while ___________ cannot be hedged
translation
downward slope
P&L activity
Spot price

24. What currencies use Direct method of quoting?
three digit ticker symbol ex: USD - United States Dollar
AUD
British Pound - Australian Dollar - New Zealand Dollar - Euro
Forward Points

25. 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...
is getting bigger
financial risk
functional currency
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

26. Australian currency code is...
spot price x interest differential
Forward contracts and Options
AUD
BS account balances

27. What dictates minimum and maximum hedge percentages?
Currency in which the entity reports results externally
FX policy
downward slope
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

28. If 1 pizza = 15 USD then ____ = 1/15 pizza
FX policy
1USD
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
SEK

29. EUR-USD currency pair accounts for about ____ of all FX volume
Forward Points
30%
allow FX rate
1 Case = 2 pizzas

30. How many currencies use Direct method of quoting?
This means 1 Euro measured against US Dollars is worth $1.40
Current market price - spot - plus or minus the difference between the interest rates of the two countries
There are FOUR
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

31. Direct quote- _____________=USD
China - Malaysia - Colombia - Chile - Argentina
The currency of the primary economic environment in which the legal entity operates
foreign currency* rate
AUD

32. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
This means 1 Euro measured against US Dollars is worth $1.40
China - Malaysia - Colombia - Chile - Argentina
three digit ticker symbol ex: USD - United States Dollar
P&L activity

33. __________ is used for translation of foreign currency B/S to reporting currency
SFAS 52
B/S rate
CNY
15 months in advance - layering on hedges through time

34. Hedging instrument used in cash flow program is...
currency options and forward
1.40 - Because I would be able to buy more euros
F&O account 87503
B/S rate

35. What is the purpose of hedging?
SEK
adverse fluctuations
Currency in which the entity reports results externally
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

36. The current market price for any currency pair is referred to as ?
Oracle
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Spot price
MXN - EUR - CHF

37. What is cash flow used for?
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
China - Malaysia - Colombia - Chile - Argentina
Used to hedge against variability in expected future cash flows
Mitigates risks by using hedging techniques

38. In general EUR-USD is involved in roughly ___ of all FX volume
6 weeks prior to Q/E
30%
90%
APL rate

39. GBP-USD account for ____ of trading FX volume
more
FX policy
12%
1 unit

40. ____________ - foreign currency/rate = USD
Indirect quote
lost
China - Malaysia - Colombia - Chile - Argentina
1.60 - Because you can buy more dollars

41. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
value
30%
1 unit
adverse fluctuations

42. 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?
functional currency
adverse fluctuations
5%
Indirect quote

43. Forward points is equal to...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
liquidity and cash
13%
spot price x interest differential

44. What does it mean to hedge?
BRL
direct
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
3 -210 billion (3 trillion)

45. B/S rate is used for revaluation of foreign currency transaction to...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Pound strengthens
5%
functional currency

46. What is local currency?

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47. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
less
BRL
The calculation is the same - but instead of adding forward points you subtract
exchange one currency for another

48. The ticker symbol for the Chinese Yuan
CNY
Pound strengthens
fx forward
two business days

49. What are the exceptions to the ticker naming convention?
exchange one currency for another
MXN - EUR - CHF
adverse fluctuations
21%

50. What is the trading in volume for FX?
3 -210 billion (3 trillion)
Effective Hedge rate
financial risk
There are FOUR