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 cash flow used for?
two business days
What is happening
SEK
Used to hedge against variability in expected future cash flows

2. Treasury's role is to identify risk - control to prevent erosion of...
13%
financial strength
MXN - EUR - CHF
average rate

3. A forward happens in...
Spot price
foreign exchange forward contract
exchange one currency for another
3 business days and beyond

4. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
financial strength
exchange rate
more

5. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
average rate
What is happening
30%

6. All other currency trading with USD accounts for ____ of FX volume
allow FX rate
translation
P&L activity
21%

7. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
FX policy
1 Case = 2 pizzas
Indirect quote

8. 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?
SFAS 52
largest - It is open 24 hours a day - except weekends
1.40 - Because I would be able to buy more euros
three digit ticker symbol ex: USD - United States Dollar

9. 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
translation
three digit ticker symbol ex: USD - United States Dollar
There are FOUR

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

11. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
Forward Points
allow FX rate
Government regulation and cost of hedging

12. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
APL rate
more
actual weighted average contract rate
FX policy

13. What rate is used to book daily transactions?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
The currency of the primary economic environment in which the legal entity operates
Treasury Daily Spot Rate
allow FX rate

14. Australian currency code is...
an estimate of aggregate rate
Pound strengthens
AUD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

15. USD-JPY account for ____ of trading FX volume
The difference between hedge rate and final effective hedge rate
Forward contracts and Options
End of Period Rate (SCO-4 rate)
13%

16. What is the trading in volume for FX?
The currency of the primary economic environment in which the legal entity operates
3 -210 billion (3 trillion)
FX policy
AUD

17. Direct quote- _____________=USD
AUD
The currency of the primary economic environment in which the legal entity operates
foreign currency* rate
foreign exchange forward contract

18. The ticker symbol for the Chinese Yuan
BS account balances
CNY
1USD
financial strength

19. US Treasuries is the second highest trading volume accounting for...
1 unit
financial strength
300 billion
MXN - EUR - CHF

20. What is local currency?

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21. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
BRL
There are FOUR
3 -210 billion (3 trillion)

22. How is the hedge rate variance calculated?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The difference between hedge rate and final effective hedge rate
average rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

23. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
China - Malaysia - Colombia - Chile - Argentina
largest - It is open 24 hours a day - except weekends
weakens

24. 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
1 unit
allow FX rate
downward slope
FX policy

25. How many currencies use Direct method of quoting?
foreign currency* rate
financial strategy and financial policy
There are FOUR
Currency of the respective operating unit's country

26. What rate is used on the balance sheet?
1 unit
Oracle
End of Period Rate (SCO-4 rate)
3 -210 billion (3 trillion)

27. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
directly or indirectly
1.40 - Because I would be able to buy more euros
China - Malaysia - Colombia - Chile - Argentina
1 unit

28. What are monetary accounts?
foreign currency* rate
MXN - EUR - CHF
Currency of the respective operating unit's country
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

29. What does it mean to hedge?
Currency of the respective operating unit's country
financial risk
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

30. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
financial risk
Pound strengthens
Government regulation and cost of hedging
direct

31. What is Functional Currency?
Effective Hedge rate
1USD
1.60 - Because you can buy more dollars
The currency of the primary economic environment in which the legal entity operates

32. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Used to hedge against variability in expected future cash flows
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1.40 - Because I would be able to buy more euros
lost

33. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
largest - It is open 24 hours a day - except weekends
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Forward contracts and Options

34. How does treasury accomplish its purpose?
SFAS 52
Mitigates risks by using hedging techniques
financial strategy and financial policy
spot price x interest differential

35. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
15 months in advance - layering on hedges through time
valuable
90%
direct

36. What are non-monetary accounts?
liquidity and cash
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52
P&L activity

37. 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?
fx forward
What is happening
5%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

38. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
an estimate of aggregate rate
average rate
fx forward

39. 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
financial strength
exchange rate
weakens

40. Revaluation can be hedged - while ___________ cannot be hedged
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
downward slope
interest rate differential
translation

41. If 1 pizza = 15 USD then ____ = 1/15 pizza
6 weeks prior to Q/E
Indirect quote
interest rate differential
1USD

42. The timing of when we execute hedges drastically impacts the ____________ we achieve
1USD
Government regulation and cost of hedging
average rate
F&O account 87503

43. An ___________ expresses the value of one currency relative to another
directly or indirectly
exchange rate
adverse fluctuations
Indirect quote

44. Treasury is responsible for managing companies funds and determining the firms'...
liquidity and cash
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
is getting bigger
financial strategy and financial policy

45. How far in advance do we hedge?
3 -210 billion (3 trillion)
15 months in advance - layering on hedges through time
P&L activity
BRL

46. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
downward slope
adverse fluctuations
1.40 - Because I would be able to buy more euros
translation

47. What are the four major FX accounting guidances?
translation
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
more
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

48. Hedging instrument used in cash flow program is...
currency options and forward
Currency of the respective operating unit's country
P&L activity
5%

49. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
lost
1.60 - Because you can buy more dollars
foreign exchange forward contract
adverse fluctuations

50. Give some examples of countries where its hard to hedge?
1.60 - Because you can buy more dollars
China - Malaysia - Colombia - Chile - Argentina
more
1USD