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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. The current market price for any currency pair is referred to as ?
Spot price
BS account balances
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1 Case = 2 pizzas

2. The currency ticker for the Sweden Kroner is?
largest - It is open 24 hours a day - except weekends
Mitigates risks by using hedging techniques
three digit ticker symbol ex: USD - United States Dollar
SEK

3. Australian currency code is...
1 share = 1/3 case
foreign currency* rate
Currency in which the entity reports results externally
AUD

4. GBP-USD account for ____ of trading FX volume
downward slope
This means 1 Euro measured against US Dollars is worth $1.40
12%
SFAS 52

5. How many currencies use Direct method of quoting?
foreign exchange forward contract
There are FOUR
three digit ticker symbol ex: USD - United States Dollar
an estimate of aggregate rate

6. When is hedge rate published?
6 weeks prior to Q/E
Effective Hedge rate
foreign currency* rate
APL rate

7. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
What is happening
B/S rate
adverse fluctuations

8. __________ is used for translation of foreign currency B/S to reporting currency
downward slope
Pound strengthens
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
B/S rate

9. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
The difference between hedge rate and final effective hedge rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
B/S rate

10. Treasury ensures that companies have ____________ to meet its obligations
SFAS 52
China - Malaysia - Colombia - Chile - Argentina
5%
liquidity and cash

11. What is reporting currency?
valuable
Currency in which the entity reports results externally
two business days
13%

12. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
two business days
CNY
MXN - EUR - CHF

13. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
China - Malaysia - Colombia - Chile - Argentina
Forward Points
three digit ticker symbol ex: USD - United States Dollar
1 share = 1/3 case

14. What is Revaluation?

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15. Forward points multiply the exchange rate by the...
more
interest rate differential
3 business days and beyond
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

16. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Mitigates risks by using hedging techniques
average rate
Pound strengthens
weakens

17. Give some examples of countries where its hard to hedge?
3 -210 billion (3 trillion)
Indirect quote
China - Malaysia - Colombia - Chile - Argentina
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

18. Where are revaluations done?
21%
Oracle
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
P&L activity

19. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Spot price
The currency of the primary economic environment in which the legal entity operates

20. US Treasuries is the second highest trading volume accounting for...
less
Government regulation and cost of hedging
The difference between hedge rate and final effective hedge rate
300 billion

21. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
translation
SFAS 52
1.60 - Because you can buy more dollars
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

22. The ticker symbol for the Chinese Yuan
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
CNY
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

23. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
financial strength
strengthens
allow FX rate
6 weeks prior to Q/E

24. The timing of when we execute hedges drastically impacts the ____________ we achieve
BRL
15 months in advance - layering on hedges through time
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
average rate

25. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
exchange one currency for another
Forward Points
1 share = 1/3 case
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

26. What are the four major FX accounting guidances?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
largest - It is open 24 hours a day - except weekends
BRL

27. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
B/S rate
more
Indirect quote
1.40 - Because I would be able to buy more euros

28. What would happen if the US interest rate was bigger than Mexico?
Forward Points
The calculation is the same - but instead of adding forward points you subtract
BS account balances
foreign exchange forward contract

29. 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?
B/S rate
1.40 - Because I would be able to buy more euros
BRL
1.60 - Because you can buy more dollars

30. What rate is used on the balance sheet?
MXN - EUR - CHF
End of Period Rate (SCO-4 rate)
Spot price
5%

31. The offset of revaluation is recorded to...
downward slope
F&O account 87503
Pound strengthens
This means 1 Euro measured against US Dollars is worth $1.40

32. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
Forward Points
exchange one currency for another
This means 1 Euro measured against US Dollars is worth $1.40
China - Malaysia - Colombia - Chile - Argentina

33. What instruments do we use to hedge?
Forward contracts and Options
Currency in which the entity reports results externally
There are FOUR
direct

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
1.60 - Because you can buy more dollars
is getting bigger
1.40 - Because I would be able to buy more euros

35. What is cash flow used for?
Effective Hedge rate
exchange rate
adverse fluctuations
Used to hedge against variability in expected future cash flows

36. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
functional currency
AUD
Treasury Daily Spot Rate

37. 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...
value
lost
financial risk
is getting bigger

38. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
What is happening
direct
3 business days and beyond
BRL

39. 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
What is happening
Pound strengthens
The calculation is the same - but instead of adding forward points you subtract

40. How is the hedge rate variance calculated?
1USD
The difference between hedge rate and final effective hedge rate
SFAS 52
1 share = 1/3 case

41. How do you read EUR-USD = 1.40
direct
This means 1 Euro measured against US Dollars is worth $1.40
BS account balances
Used to hedge against variability in expected future cash flows

42. Treasury is responsible for banking requirements - funding for the business and managing...
Forward Points
value
financial risk
MXN - EUR - CHF

43. ____________ is used for translation of foreign currency P&L to Reporting currency?
BS account balances
Currency in which the entity reports results externally
APL rate
F&O account 87503

44. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
3 business days and beyond
Current market price - spot - plus or minus the difference between the interest rates of the two countries
weakens
value

45. What is local currency?

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46. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
1.40 - Because I would be able to buy more euros
13%
12%

47. How far in advance do we hedge?
liquidity and cash
an estimate of aggregate rate
Mitigates risks by using hedging techniques
15 months in advance - layering on hedges through time

48. What is the ticker symbol for Brazilian Real?
1.40 - Because I would be able to buy more euros
BRL
1 unit
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

49. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
liquidity and cash
Treasury Daily Spot Rate
foreign exchange forward contract
valuable

50. What is the trading in volume for FX?
12%
3 -210 billion (3 trillion)
currency options and forward
China - Malaysia - Colombia - Chile - Argentina