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. The difference in interest rate is referred to as...
The calculation is the same - but instead of adding forward points you subtract
Forward Points
weakens
Spot price

2. What currencies use Direct method of quoting?
financial strength
directly or indirectly
British Pound - Australian Dollar - New Zealand Dollar - Euro
China - Malaysia - Colombia - Chile - Argentina

3. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
BRL
adverse fluctuations
The difference between hedge rate and final effective hedge rate

4. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
This means 1 Euro measured against US Dollars is worth $1.40
spot price x interest differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

5. All other currency trading with USD accounts for ____ of FX volume
21%
weakens
13%
The currency of the primary economic environment in which the legal entity operates

6. 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
FX policy
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Currency of the respective operating unit's country

7. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
directly or indirectly
The currency of the primary economic environment in which the legal entity operates
3 business days and beyond
1.60 - Because you can buy more dollars

8. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
two business days
Pound strengthens
value
exchange one currency for another

9. USD-JPY account for ____ of trading FX volume
13%
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 allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
3 business days and beyond

10. A forward happens in...
3 business days and beyond
SEK
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
foreign currency* rate

11. How far in advance do we hedge?
15 months in advance - layering on hedges through time
21%
fx forward
Forward contracts and Options

12. What is reporting currency?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Currency in which the entity reports results externally
exchange rate
CNY

13. EUR-USD currency pair accounts for about ____ of all FX volume
British Pound - Australian Dollar - New Zealand Dollar - Euro
30%
Mitigates risks by using hedging techniques
Indirect quote

14. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
more
P&L activity
lost
What is happening

15. 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 revalue the monetary BS accounts from: entered rate to B/S rate - prior month's B/S rate to current month's BS rates
Government regulation and cost of hedging
APL rate
downward slope

16. What is local currency?

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17. What is cash flow used for?
Used to hedge against variability in expected future cash flows
foreign exchange forward contract
B/S rate
liquidity and cash

18. Give an example of one way to hedge a price increase in gas prices...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1.60 - Because you can buy more dollars
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

19. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
three digit ticker symbol ex: USD - United States Dollar
90%
China - Malaysia - Colombia - Chile - Argentina

20. What rate is used on the P&L?
The calculation is the same - but instead of adding forward points you subtract
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
The difference between hedge rate and final effective hedge rate
APL rate

21. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
lost
What is happening
average rate

22. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
The calculation is the same - but instead of adding forward points you subtract
direct
13%

23. Revaluation can be hedged - while ___________ cannot be hedged
B/S rate
translation
average rate
300 billion

24. What are some of the reason not hedge at all or partially hedge in a few countries?
Currency of the respective operating unit's country
FX policy
Government regulation and cost of hedging
There are FOUR

25. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
directly or indirectly
SEK
an estimate of aggregate rate
F&O account 87503

26. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
15 months in advance - layering on hedges through time
downward slope

27. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
Currency of the respective operating unit's country
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
exchange one currency for another

28. If 1 pizza = 15 USD then ____ = 1/15 pizza
Oracle
1USD
value
Currency in which the entity reports results externally

29. Australian currency code is...
AUD
largest - It is open 24 hours a day - except weekends
spot price x interest differential
3 business days and beyond

30. How does treasury accomplish its purpose?
6 weeks prior to Q/E
1 Case = 2 pizzas
Used to hedge against variability in expected future cash flows
Mitigates risks by using hedging techniques

31. In general EUR-USD is involved in roughly ___ of all FX volume
1 share = 1/3 case
Used to hedge against variability in expected future cash flows
90%
12%

32. Treasury ensures that companies have ____________ to meet its obligations
15 months in advance - layering on hedges through time
liquidity and cash
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

33. What instruments do we use to hedge?
The difference between hedge rate and final effective hedge rate
FX policy
Forward contracts and Options
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

34. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
foreign exchange forward contract
functional currency
6 weeks prior to Q/E

35. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
valuable
average rate
currency options and forward
value

36. 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
translation
allow FX rate
direct
average rate

37. 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
CNY
Indirect quote
APL rate
Pound strengthens

38. The rules for adding or subtracting forward points depend on whether it is quoted...
1 unit
Forward Points
90%
directly or indirectly

39. 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...
is getting bigger
This means 1 Euro measured against US Dollars is worth $1.40
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
3 business days and beyond

40. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
1 Case = 2 pizzas
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
exchange one currency for another

41. What is the purpose 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
The difference between hedge rate and final effective hedge rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Forward Points

42. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
Currency of the respective operating unit's country
lost
The currency of the primary economic environment in which the legal entity operates

43. Forward points is equal to...
300 billion
spot price x interest differential
The currency of the primary economic environment in which the legal entity operates
6 weeks prior to Q/E

44. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
The difference between hedge rate and final effective hedge rate
interest rate differential
300 billion

45. What is Revaluation?

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46. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
APL rate
Currency in which the entity reports results externally
1 unit
3 business days and beyond

47. __________ is used for translation of foreign currency B/S to reporting currency
is getting bigger
fx forward
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
B/S rate

48. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
There are FOUR
MXN - EUR - CHF
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

49. GBP-USD account for ____ of trading FX volume
strengthens
interest rate differential
less
12%

50. The ticker symbol for the Chinese Yuan
downward slope
21%
Mitigates risks by using hedging techniques
CNY