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. Where are revaluations done?
Oracle
6 weeks prior to Q/E
actual weighted average contract rate
The difference between hedge rate and final effective hedge rate

2. 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?
direct
BRL
1.40 - Because I would be able to buy more euros
12%

3. 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
allow FX rate
30%
Pound strengthens
3 business days and beyond

4. How far in advance do we hedge?
90%
15 months in advance - layering on hedges through time
B/S rate
The currency of the primary economic environment in which the legal entity operates

5. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
weakens
1USD
6 weeks prior to Q/E
three digit ticker symbol ex: USD - United States Dollar

6. The offset of revaluation is recorded to...
BRL
exchange rate
F&O account 87503
1.40 - Because I would be able to buy more euros

7. USD-JPY account for ____ of trading FX volume
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
13%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
financial strength

8. Treasury is responsible for banking requirements - funding for the business and managing...
1.60 - Because you can buy more dollars
financial risk
5%
Treasury Daily Spot Rate

9. What is Fair Value hedge program used for?
financial risk
BS account balances
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Used to hedge against variability in expected future cash flows

10. What would happen if the US interest rate was bigger than Mexico?
foreign currency* rate
liquidity and cash
The calculation is the same - but instead of adding forward points you subtract
less

11. What is Revaluation?

12. What are some of the reason not hedge at all or partially hedge in a few countries?
downward slope
This means 1 Euro measured against US Dollars is worth $1.40
There are FOUR
Government regulation and cost of hedging

13. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
largest - It is open 24 hours a day - except weekends
BRL
1.60 - Because you can buy more dollars
more

14. 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
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
direct
Forward Points

15. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
China - Malaysia - Colombia - Chile - Argentina
What is happening
SEK
There are FOUR

16. Give an example of one way to hedge a price increase in gas prices...
Oracle
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
lost
financial risk

17. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
foreign exchange forward contract
more
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
value

18. The difference in interest rate is referred to as...
financial risk
Forward Points
CNY
5%

19. Forward points multiply the exchange rate by the...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
15 months in advance - layering on hedges through time
5%
interest rate differential

20. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
Currency of the respective operating unit's country
average rate
financial risk

21. What is the trading in volume for FX?
3 -210 billion (3 trillion)
adverse fluctuations
1 share = 1/3 case
1 unit

22. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
lost
translation
value
Effective Hedge rate

23. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
currency options and forward
5%
30%

24. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
translation
China - Malaysia - Colombia - Chile - Argentina
less
1 share = 1/3 case

25. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
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
End of Period Rate (SCO-4 rate)
less
5%

26. Revaluation can be hedged - while ___________ cannot be hedged
more
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Indirect quote
translation

27. What currencies use Direct method of quoting?
directly or indirectly
British Pound - Australian Dollar - New Zealand Dollar - Euro
Pound strengthens
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

28. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
Effective Hedge rate
1.60 - Because you can buy more dollars
FX policy

29. What rate is used to book daily transactions?
15 months in advance - layering on hedges through time
There are FOUR
direct
Treasury Daily Spot Rate

30. Treasury is responsible for managing companies funds and determining the firms'...
Spot price
less
financial strategy and financial policy
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

31. ____________ should be denominated in the currency they will either be paid or received in...
less
Forward contracts and Options
BS account balances
The currency of the primary economic environment in which the legal entity operates

32. ____________ is used for translation of foreign currency P&L to Reporting currency?
Spot price
APL rate
1 share = 1/3 case
3 -210 billion (3 trillion)

33. B/S rate is used for revaluation of foreign currency transaction to...
1 share = 1/3 case
more
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
functional currency

34. 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
Used to hedge against variability in expected future cash flows
Currency in which the entity reports results externally
Forward contracts and Options

35. EUR-USD currency pair accounts for about ____ of all FX volume
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
3 -210 billion (3 trillion)
Indirect quote
30%

36. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
exchange one currency for another
downward slope
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

37. The current market price for any currency pair is referred to as ?
Spot price
CNY
liquidity and cash
15 months in advance - layering on hedges through time

38. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
China - Malaysia - Colombia - Chile - Argentina
SEK
British Pound - Australian Dollar - New Zealand Dollar - Euro

39. __________ is used for translation of foreign currency B/S to reporting currency
There are FOUR
interest rate differential
FX policy
B/S rate

40. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
21%
P&L activity
Indirect quote
translation

41. How does treasury accomplish its purpose?
3 -210 billion (3 trillion)
Mitigates risks by using hedging techniques
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

42. In general EUR-USD is involved in roughly ___ of all FX volume
translation
financial risk
P&L activity
90%

43. All other currency trading with USD accounts for ____ of FX volume
15 months in advance - layering on hedges through time
21%
largest - It is open 24 hours a day - except weekends
functional currency

44. 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
5%
15 months in advance - layering on hedges through time
End of Period Rate (SCO-4 rate)

45. Direct quote- _____________=USD
financial risk
foreign currency* rate
CNY
3 -210 billion (3 trillion)

46. The currency ticker for the Sweden Kroner is?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Currency of the respective operating unit's country
3 business days and beyond
SEK

47. When is hedge rate published?
6 weeks prior to Q/E
an estimate of aggregate rate
spot price x interest differential
currency options and forward

48. What is reporting currency?
valuable
B/S rate
Currency in which the entity reports results externally
interest rate differential

49. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
5%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
BS account balances
1 Case = 2 pizzas

50. ____________ - foreign currency/rate = USD
currency options and forward
5%
15 months in advance - layering on hedges through time
Indirect quote