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 ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
valuable
three digit ticker symbol ex: USD - United States Dollar
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
13%

2. The Foreign Exchange market is the __________ market in the world
F&O account 87503
The calculation is the same - but instead of adding forward points you subtract
largest - It is open 24 hours a day - except weekends
foreign exchange forward contract

3. An ___________ expresses the value of one currency relative to another
currency options and forward
What is happening
exchange rate
direct

4. How does treasury accomplish its purpose?
1.40 - Because I would be able to buy more euros
lost
currency options and forward
Mitigates risks by using hedging techniques

5. Give some examples of countries where its hard to hedge?
FX policy
China - Malaysia - Colombia - Chile - Argentina
3 business days and beyond
6 weeks prior to Q/E

6. In general EUR-USD is involved in roughly ___ of all FX volume
90%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
three digit ticker symbol ex: USD - United States Dollar

7. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
British Pound - Australian Dollar - New Zealand Dollar - Euro
Government regulation and cost of hedging
exchange one currency for another
value

8. 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 share = 1/3 case
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
CNY
allow FX rate

9. A forward happens in...
3 business days and beyond
F&O account 87503
British Pound - Australian Dollar - New Zealand Dollar - Euro
spot price x interest differential

10. Direct quote- _____________=USD
strengthens
foreign currency* rate
12%
1.60 - Because you can buy more dollars

11. What is local currency?

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12. What rate is used to book daily transactions?
fx forward
actual weighted average contract rate
Treasury Daily Spot Rate
direct

13. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
F&O account 87503
6 weeks prior to Q/E
Treasury Daily Spot Rate

14. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
300 billion
BRL
This means 1 Euro measured against US Dollars is worth $1.40

15. What are the four major FX accounting guidances?
Government regulation and cost of hedging
13%
downward slope
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

16. EUR-USD currency pair accounts for about ____ of all FX volume
weakens
directly or indirectly
30%
3 -210 billion (3 trillion)

17. What is reporting currency?
downward slope
Currency in which the entity reports results externally
Pound strengthens
financial strength

18. What is the ticker symbol for Brazilian Real?
China - Malaysia - Colombia - Chile - Argentina
two business days
MXN - EUR - CHF
BRL

19. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
an estimate of aggregate rate
Indirect quote
more
1.40 - Because I would be able to buy more euros

20. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
downward slope
an estimate of aggregate rate
Currency of the respective operating unit's country
lost

21. The ticker symbol for the Chinese Yuan
Mitigates risks by using hedging techniques
CNY
Forward contracts and Options
Used to hedge against variability in expected future cash flows

22. ____________ should be denominated in the currency they will either be paid or received in...
Used to hedge against variability in expected future cash flows
There are FOUR
BS account balances
3 -210 billion (3 trillion)

23. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
SEK
exchange one currency for another

24. When is hedge rate published?
MXN - EUR - CHF
functional currency
more
6 weeks prior to Q/E

25. Forward points multiply the exchange rate by the...
financial risk
Currency in which the entity reports results externally
interest rate differential
currency options and forward

26. The rules for adding or subtracting forward points depend on whether it is quoted...
adverse fluctuations
Currency in which the entity reports results externally
Used to hedge against variability in expected future cash flows
directly or indirectly

27. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Indirect quote
foreign exchange forward contract
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
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

28. Forward points is equal to...
1 Case = 2 pizzas
directly or indirectly
spot price x interest differential
two business days

29. The currency ticker for the Sweden Kroner is?
SEK
Spot price
Mitigates risks by using hedging techniques
1 unit

30. 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?
China - Malaysia - Colombia - Chile - Argentina
5%
1 unit
MXN - EUR - CHF

31. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
interest rate differential
P&L activity
SFAS 52

32. What is the purpose of hedging?
Forward Points
largest - It is open 24 hours a day - except weekends
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
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

33. 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
Pound strengthens
downward slope
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

34. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
What is happening
1.60 - Because you can buy more dollars
downward slope

35. The difference in interest rate is referred to as...
Mitigates risks by using hedging techniques
SFAS 52
Forward Points
1 Case = 2 pizzas

36. 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?
liquidity and cash
valuable
1.40 - Because I would be able to buy more euros
Oracle

37. What are the exceptions to the ticker naming convention?
Mitigates risks by using hedging techniques
APL rate
MXN - EUR - CHF
Currency in which the entity reports results externally

38. All other currency trading with USD accounts for ____ of FX volume
21%
foreign currency* rate
SFAS 52
FX policy

39. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
1.60 - Because you can buy more dollars
P&L activity
90%
liquidity and cash

40. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
End of Period Rate (SCO-4 rate)
1.40 - Because I would be able to buy more euros
spot price x interest differential
lost

41. What rate is used on the P&L?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1.40 - Because I would be able to buy more euros
This means 1 Euro measured against US Dollars is worth $1.40
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

42. Treasury is responsible for banking requirements - funding for the business and managing...
30%
CNY
AUD
financial risk

43. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
Treasury Daily Spot Rate
Spot price
SEK

44. The offset of revaluation is recorded to...
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
F&O account 87503
direct
Used to hedge against variability in expected future cash flows

45. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
fx forward
5%
1 unit
directly or indirectly

46. How is the price of the forward contract determined?
downward slope
Current market price - spot - plus or minus the difference between the interest rates of the two countries
BRL
is getting bigger

47. Where are revaluations done?
adverse fluctuations
Forward Points
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Oracle

48. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
more
300 billion
value

49. How far in advance do we hedge?
15 months in advance - layering on hedges through time
Forward contracts and Options
1USD
currency options and forward

50. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Treasury Daily Spot Rate
1 share = 1/3 case
13%
actual weighted average contract rate