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. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
SFAS 52
Mitigates risks by using hedging techniques
more
actual weighted average contract rate

2. The timing of when we execute hedges drastically impacts the ____________ we achieve
13%
Forward Points
average rate
financial strategy and financial policy

3. What rate is used on the balance sheet?
1.40 - Because I would be able to buy more euros
FX policy
End of Period Rate (SCO-4 rate)
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

4. The current market price for any currency pair is referred to as ?
Spot price
translation
SFAS 52
value

5. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
financial strategy and financial policy
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
90%
direct

6. What is the ticker symbol for Brazilian Real?
BRL
12%
1.40 - Because I would be able to buy more euros
three digit ticker symbol ex: USD - United States Dollar

7. In a downward slope that represents USD-JPY relationship a _____________ means that if you bough Japanese Yen at point A you made money at point B
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
Effective Hedge rate
downward slope
lost

8. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
The currency of the primary economic environment in which the legal entity operates
1 share = 1/3 case
SEK
End of Period Rate (SCO-4 rate)

9. Australian currency code is...
an estimate of aggregate rate
Pound strengthens
currency options and forward
AUD

10. What is currency Translation?

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11. Give some examples of countries where its hard to hedge?
foreign currency* rate
China - Malaysia - Colombia - Chile - Argentina
value
Mitigates risks by using hedging techniques

12. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
The difference between hedge rate and final effective hedge rate
less
directly or indirectly
more

13. What currencies use Direct method of quoting?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
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
British Pound - Australian Dollar - New Zealand Dollar - Euro
exchange rate

14. In general EUR-USD is involved in roughly ___ of all FX volume
Forward Points
90%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
strengthens

15. What is the trading in volume for FX?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
3 -210 billion (3 trillion)
6 weeks prior to Q/E
Oracle

16. US Treasuries is the second highest trading volume accounting for...
Pound strengthens
1.40 - Because I would be able to buy more euros
300 billion
B/S rate

17. What is Revaluation?

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18. 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
liquidity and cash
financial strategy and financial policy
The difference between hedge rate and final effective hedge rate

19. The offset of revaluation is recorded to...
SFAS 52
F&O account 87503
What is happening
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

20. A Spot happens in...
Effective Hedge rate
1.40 - Because I would be able to buy more euros
5%
two business days

21. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
strengthens
There are FOUR
Pound strengthens

22. 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
Currency in which the entity reports results externally
Pound strengthens
average rate
directly or indirectly

23. What are monetary accounts?
exchange rate
1USD
interest rate differential
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

24. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
Currency of the respective operating unit's country
1 unit

25. The ticker symbol for the Chinese Yuan
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1 Case = 2 pizzas
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
CNY

26. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
directly or indirectly
actual weighted average contract rate
less

27. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Pound strengthens
Oracle
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

28. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
more
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
value
This means 1 Euro measured against US Dollars is worth $1.40

29. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Currency in which the entity reports results externally
three digit ticker symbol ex: USD - United States Dollar
Pound strengthens
Government regulation and cost of hedging

30. Hedging instrument used in Fair Value Hedge program is...
fx forward
SFAS 52
F&O account 87503
There are FOUR

31. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
3 business days and beyond
adverse fluctuations
British Pound - Australian Dollar - New Zealand Dollar - Euro
Government regulation and cost of hedging

32. What are some of the reason not hedge at all or partially hedge in a few countries?
direct
Government regulation and cost of hedging
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Currency of the respective operating unit's country

33. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
allow FX rate
valuable
weakens
1.60 - Because you can buy more dollars

34. What would happen if the US interest rate was bigger than Mexico?
F&O account 87503
End of Period Rate (SCO-4 rate)
Pound strengthens
The calculation is the same - but instead of adding forward points you subtract

35. 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
strengthens
3 business days and beyond
1 share = 1/3 case

36. USD-JPY account for ____ of trading FX volume
1 share = 1/3 case
1.40 - Because I would be able to buy more euros
300 billion
13%

37. A forward happens in...
3 business days and beyond
F&O account 87503
valuable
12%

38. EUR-USD currency pair accounts for about ____ of all FX volume
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
30%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

39. What are the exceptions to the ticker naming convention?
P&L activity
6 weeks prior to Q/E
British Pound - Australian Dollar - New Zealand Dollar - Euro
MXN - EUR - CHF

40. Forward points is equal to...
AUD
CNY
downward slope
spot price x interest differential

41. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
an estimate of aggregate rate
Effective Hedge rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

42. What is local currency?

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43. Treasury's role is to identify risk - control to prevent erosion of...
fx forward
financial strength
APL rate
What is happening

44. When is hedge rate published?
foreign exchange forward contract
downward slope
6 weeks prior to Q/E
CNY

45. Hedging instrument used in cash flow program is...
financial strategy and financial policy
currency options and forward
SFAS 52
21%

46. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
The difference between hedge rate and final effective hedge rate
6 weeks prior to Q/E
spot price x interest differential

47. Treasury ensures that companies have ____________ to meet its obligations
Government regulation and cost of hedging
300 billion
liquidity and cash
APL rate

48. What instruments do we use to hedge?
Forward contracts and Options
1 unit
Forward Points
12%

49. 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
The calculation is the same - but instead of adding forward points you subtract
12%
Pound strengthens

50. If 1 pizza = 15 USD then ____ = 1/15 pizza
largest - It is open 24 hours a day - except weekends
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
1USD
SFAS 52