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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. EUR-USD currency pair accounts for about ____ of all FX volume
30%
Spot price
Currency of the respective operating unit's country
1 unit

2. 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
F&O account 87503
downward slope
exchange one currency for another
more

3. What currencies use Direct method of quoting?
less
Forward Points
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
British Pound - Australian Dollar - New Zealand Dollar - Euro

4. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
currency options and forward
Effective Hedge rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

5. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
1 unit
lost
End of Period Rate (SCO-4 rate)
1 Case = 2 pizzas

6. 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?
5%
Spot price
less
Forward Points

7. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
value
strengthens
valuable
B/S rate

8. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
less
exchange one currency for another
BS account balances
P&L activity

9. ____________ should be denominated in the currency they will either be paid or received in...
direct
BS account balances
End of Period Rate (SCO-4 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

10. What are some of the reason not hedge at all or partially hedge in a few countries?
12%
Government regulation and cost of hedging
an estimate of aggregate rate
This means 1 Euro measured against US Dollars is worth $1.40

11. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
21%
two business days
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

12. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
direct
Treasury Daily Spot Rate
less

13. How do you read EUR-USD = 1.40
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
13%
This means 1 Euro measured against US Dollars is worth $1.40
CNY

14. Forward points multiply the exchange rate by the...
interest rate differential
Forward contracts and Options
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

15. 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
valuable
three digit ticker symbol ex: USD - United States Dollar
interest rate differential

16. The Foreign Exchange market is the __________ market in the world
directly or indirectly
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
largest - It is open 24 hours a day - except weekends
What is happening

17. How is the hedge rate variance calculated?
actual weighted average contract rate
The currency of the primary economic environment in which the legal entity operates
exchange one currency for another
The difference between hedge rate and final effective hedge rate

18. Treasury's role is to identify risk - control to prevent erosion of...
Effective Hedge rate
more
financial strength
21%

19. What is Revaluation?

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20. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
foreign currency* rate
financial risk
1 unit
The difference between hedge rate and final effective hedge rate

21. Give an example of one way to hedge a price increase in gas prices...
Forward contracts and Options
1 unit
This means 1 Euro measured against US Dollars is worth $1.40
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

22. A forward happens in...
CNY
direct
3 business days and beyond
spot price x interest differential

23. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
5%
exchange rate
financial risk
weakens

24. What instruments do we use to hedge?
There are FOUR
Forward contracts and Options
strengthens
Government regulation and cost of hedging

25. 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
strengthens
allow FX rate
directly or indirectly
BS account balances

26. How many currencies use Direct method of quoting?
There are FOUR
strengthens
foreign exchange forward contract
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

27. Australian currency code is...
fx forward
AUD
BS account balances
Oracle

28. What is reporting currency?
Currency in which the entity reports results externally
13%
12%
The calculation is the same - but instead of adding forward points you subtract

29. US Treasuries is the second highest trading volume accounting for...
downward slope
30%
300 billion
Currency of the respective operating unit's country

30. The difference in interest rate is referred to as...
21%
Forward Points
5%
weakens

31. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
foreign currency* rate
interest rate differential
Pound strengthens
actual weighted average contract rate

32. B/S rate is used for revaluation of foreign currency transaction to...
weakens
liquidity and cash
End of Period Rate (SCO-4 rate)
functional currency

33. What is the trading in volume for FX?
Effective Hedge rate
SEK
3 -210 billion (3 trillion)
exchange rate

34. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
translation
The difference between hedge rate and final effective hedge rate
5%
direct

35. In general EUR-USD is involved in roughly ___ of all FX volume
less
90%
Oracle
financial strength

36. Hedging instrument used in cash flow program is...
Currency of the respective operating unit's country
currency options and forward
1 unit
interest rate differential

37. What does it mean to hedge?
1.60 - Because you can buy more dollars
B/S rate
three digit ticker symbol ex: USD - United States Dollar
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

38. Treasury is responsible for managing companies funds and determining the firms'...
value
currency options and forward
financial strength
financial strategy and financial policy

39. 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?
15 months in advance - layering on hedges through time
End of Period Rate (SCO-4 rate)
currency options and forward
1.40 - Because I would be able to buy more euros

40. GBP-USD account for ____ of trading FX volume
Effective Hedge rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
12%
lost

41. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
Pound strengthens
British Pound - Australian Dollar - New Zealand Dollar - Euro
currency options and forward

42. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
BS account balances
functional currency
value

43. How does treasury accomplish its purpose?
Spot price
Mitigates risks by using hedging techniques
Indirect quote
90%

44. 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
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
21%
Pound strengthens
functional currency

45. Treasury ensures that companies have ____________ to meet its obligations
SEK
liquidity and cash
The difference between hedge rate and final effective hedge rate
valuable

46. ____________ - foreign currency/rate = USD
Forward contracts and Options
Effective Hedge rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Indirect quote

47. All other currency trading with USD accounts for ____ of FX volume
21%
BRL
functional currency
3 -210 billion (3 trillion)

48. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
liquidity and cash
CNY
What is happening
allow FX rate

49. Give some examples of countries where its hard to hedge?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
1.60 - Because you can buy more dollars
China - Malaysia - Colombia - Chile - Argentina
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

50. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
5%
three digit ticker symbol ex: USD - United States Dollar
two business days
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

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Foreign Exchange Essentials

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