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?
1.60 - Because you can buy more dollars
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Used to hedge against variability in expected future cash flows
financial risk

2. What dictates minimum and maximum hedge percentages?
Indirect quote
FX policy
F&O account 87503
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

3. The current market price for any currency pair is referred to as ?
Spot price
average 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
weakens

4. What is reporting currency?
foreign currency* rate
6 weeks prior to Q/E
Currency in which the entity reports results externally
China - Malaysia - Colombia - Chile - Argentina

5. Treasury is responsible for banking requirements - funding for the business and managing...
1 share = 1/3 case
1 unit
financial risk
13%

6. What are some of the reason not hedge at all or partially hedge in a few countries?
spot price x interest differential
translation
financial strategy and financial policy
Government regulation and cost of hedging

7. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
F&O account 87503
1 Case = 2 pizzas
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
is getting bigger

8. A Spot happens in...
financial risk
There are FOUR
two business days
exchange one currency for another

9. 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?
BRL
MXN - EUR - CHF
Indirect quote
5%

10. What are monetary accounts?
Forward contracts and Options
adverse fluctuations
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
FX policy

11. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
Treasury Daily Spot Rate
5%
foreign exchange forward contract

12. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
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
actual weighted average contract rate
allow FX rate

13. The currency ticker for the Sweden Kroner is?
SEK
Used to hedge against variability in expected future cash flows
This means 1 Euro measured against US Dollars is worth $1.40
30%

14. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Used to hedge against variability in expected future cash flows
valuable
exchange one currency for another
foreign currency* rate

15. 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 the change in fair value (revaluation) of monetary assets & liabilities
lost
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
value

16. 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?
AUD
300 billion
1.40 - Because I would be able to buy more euros
5%

17. What rate is used to book daily transactions?
Treasury Daily Spot Rate
Pound strengthens
1.40 - Because I would be able to buy more euros
foreign currency* rate

18. What are the four major FX accounting guidances?
currency options and forward
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
1 unit
translation

19. Direct quote- _____________=USD
Effective Hedge rate
Indirect quote
three digit ticker symbol ex: USD - United States Dollar
foreign currency* rate

20. What is the trading in volume for FX?
3 -210 billion (3 trillion)
liquidity and cash
weakens
Used to hedge against variability in expected future cash flows

21. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
interest rate differential
actual weighted average contract rate
5%

22. Revaluation can be hedged - while ___________ cannot be hedged
downward slope
translation
BS account balances
Oracle

23. What is the ticker symbol for Brazilian Real?
5%
15 months in advance - layering on hedges through time
1 unit
BRL

24. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
directly or indirectly
Currency in which the entity reports results externally
weakens

25. What would happen if the US interest rate was bigger than Mexico?
directly or indirectly
financial strategy and financial policy
British Pound - Australian Dollar - New Zealand Dollar - Euro
The calculation is the same - but instead of adding forward points you subtract

26. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
1.60 - Because you can buy more dollars
SFAS 52
FX policy

27. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
adverse fluctuations
an estimate of aggregate rate
B/S rate
MXN - EUR - CHF

28. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
3 business days and beyond
foreign currency* rate
functional currency

29. All other currency trading with USD accounts for ____ of FX volume
3 -210 billion (3 trillion)
21%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
P&L activity

30. The difference in interest rate is referred to as...
financial strategy and financial policy
1 Case = 2 pizzas
Forward Points
foreign currency* rate

31. ____________ is used for translation of foreign currency P&L to Reporting currency?
13%
APL 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
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

32. 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
Forward contracts and Options
foreign currency* rate
Pound strengthens
AUD

33. An ___________ expresses the value of one currency relative to another
Forward Points
exchange rate
6 weeks prior to Q/E
B/S rate

34. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1 Case = 2 pizzas
P&L activity
1.60 - Because you can buy more dollars
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

35. Give some examples of countries where its hard to hedge?
There are FOUR
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
China - Malaysia - Colombia - Chile - Argentina
Treasury Daily Spot Rate

36. What does it mean to hedge?
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 protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
6 weeks prior to Q/E
1.40 - Because I would be able to buy more euros

37. 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
300 billion
allow FX rate
China - Malaysia - Colombia - Chile - Argentina

38. 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
fx forward
Used to hedge against variability in expected future cash flows
3 -210 billion (3 trillion)

39. 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
SEK
3 business days and beyond
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

40. 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
less
This means 1 Euro measured against US Dollars is worth $1.40
AUD

41. What is Functional Currency?
Spot price
exchange rate
Pound strengthens
The currency of the primary economic environment in which the legal entity operates

42. USD-JPY account for ____ of trading FX volume
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 unit
13%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

43. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
exchange rate
weakens
three digit ticker symbol ex: USD - United States Dollar
currency options and forward

44. When is hedge rate published?
directly or indirectly
30%
6 weeks prior to Q/E
1 Case = 2 pizzas

45. Forward points multiply the exchange rate by the...
interest rate differential
liquidity and cash
adverse fluctuations
valuable

46. The Foreign Exchange market is the __________ market in the world
Mitigates risks by using hedging techniques
largest - It is open 24 hours a day - except weekends
6 weeks prior to Q/E
valuable

47. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
FX policy
Pound strengthens
three digit ticker symbol ex: USD - United States Dollar

48. ____________ should be denominated in the currency they will either be paid or received in...
foreign currency* rate
BS account balances
weakens
5%

49. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
strengthens
1 unit
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
more

50. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
The difference between hedge rate and final effective hedge rate
1 unit
valuable