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 reporting currency?
Currency in which the entity reports results externally
5%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Oracle

2. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
BRL
foreign exchange forward contract
BS account balances
1 unit

3. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
functional currency
is getting bigger
an estimate of aggregate rate

4. What are some of the reason not hedge at all or partially hedge in a few countries?
1 unit
300 billion
Treasury Daily Spot Rate
Government regulation and cost of hedging

5. What is Functional Currency?
China - Malaysia - Colombia - Chile - Argentina
The currency of the primary economic environment in which the legal entity operates
allow FX rate
more

6. 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
Oracle
downward slope
The difference between hedge rate and final effective hedge rate

7. Give some examples of countries where its hard to hedge?
3 business days and beyond
There are FOUR
This means 1 Euro measured against US Dollars is worth $1.40
China - Malaysia - Colombia - Chile - Argentina

8. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
financial strategy and financial policy
SFAS 52
fx forward

9. In general EUR-USD is involved in roughly ___ of all FX volume
Treasury Daily Spot Rate
directly or indirectly
MXN - EUR - CHF
90%

10. What are the four major FX accounting guidances?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
15 months in advance - layering on hedges through time
This means 1 Euro measured against US Dollars is worth $1.40

11. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
strengthens
financial strength
foreign exchange forward contract

12. 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?
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
two business days
1.40 - Because I would be able to buy more euros
30%

13. The ticker symbol for the Chinese Yuan
There are FOUR
3 -210 billion (3 trillion)
CNY
directly or indirectly

14. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
is getting bigger
13%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

15. Where are revaluations done?
CNY
21%
Oracle
The difference between hedge rate and final effective hedge rate

16. An ___________ expresses the value of one currency relative to another
exchange rate
downward slope
more
an estimate of aggregate rate

17. 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
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
allow FX rate
The currency of the primary economic environment in which the legal entity operates
average rate

18. How far in advance do we hedge?
15 months in advance - layering on hedges through time
foreign exchange forward contract
CNY
12%

19. EUR-USD currency pair accounts for about ____ of all FX volume
30%
Indirect quote
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
China - Malaysia - Colombia - Chile - Argentina

20. How many currencies use Direct method of quoting?
MXN - EUR - CHF
Indirect quote
spot price x interest differential
There are FOUR

21. The difference in interest rate is referred to as...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Forward Points
Currency in which the entity reports results externally
valuable

22. 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
SFAS 52
downward slope
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SEK

23. The rules for adding or subtracting forward points depend on whether it is quoted...
This means 1 Euro measured against US Dollars is worth $1.40
CNY
directly or indirectly
financial strength

24. GBP-USD account for ____ of trading FX volume
SFAS 52
12%
Indirect quote
spot price x interest differential

25. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
BS account balances
Forward contracts and Options
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

26. What would happen if the US interest rate was bigger than Mexico?
largest - It is open 24 hours a day - except weekends
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
allow FX rate
The calculation is the same - but instead of adding forward points you subtract

27. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
is getting bigger
The calculation is the same - but instead of adding forward points you subtract
3 -210 billion (3 trillion)

28. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
lost
an estimate of aggregate rate
directly or indirectly

29. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
90%
The difference between hedge rate and final effective hedge rate
SEK
1 unit

30. Australian currency code is...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
AUD
1 unit
financial strategy and financial policy

31. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
adverse fluctuations
SFAS 52
1 Case = 2 pizzas
End of Period Rate (SCO-4 rate)

32. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
lost
downward slope
three digit ticker symbol ex: USD - United States Dollar

33. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
P&L activity
weakens
Current market price - spot - plus or minus the difference between the interest rates of the two countries

34. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
1 share = 1/3 case
an estimate of aggregate rate
1 unit
adverse fluctuations

35. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
1 unit
Forward Points
exchange rate
value

36. What is the ticker symbol for Brazilian Real?
financial risk
1USD
three digit ticker symbol ex: USD - United States Dollar
BRL

37. The currency ticker for the Sweden Kroner is?
CNY
This means 1 Euro measured against US Dollars is worth $1.40
SEK
actual weighted average contract rate

38. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1USD
5%

39. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
functional currency
30%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
less

40. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
FX policy
15 months in advance - layering on hedges through time
Forward contracts and Options

41. What rate is used to book daily transactions?
The currency of the primary economic environment in which the legal entity operates
lost
exchange rate
Treasury Daily Spot Rate

42. Hedging instrument used in Fair Value Hedge program is...
SFAS 52
foreign currency* rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
fx forward

43. What is cash flow used for?
End of Period Rate (SCO-4 rate)
Used to hedge against variability in expected future cash flows
Indirect quote
F&O account 87503

44. The offset of revaluation is recorded to...
F&O account 87503
two business days
3 business days and beyond
foreign currency* rate

45. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Currency of the respective operating unit's country
1.60 - Because you can buy more dollars

46. US Treasuries is the second highest trading volume accounting for...
300 billion
BRL
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Treasury Daily Spot Rate

47. ____________ is used for translation of foreign currency P&L to Reporting currency?
currency options and forward
Indirect quote
APL rate
financial risk

48. What does it mean to hedge?
Effective Hedge rate
is getting bigger
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1.40 - Because I would be able to buy more euros

49. Forward points is equal to...
What is happening
exchange rate
spot price x interest differential
1 unit

50. How do you read EUR-USD = 1.40
foreign currency* rate
interest rate differential
1 share = 1/3 case
This means 1 Euro measured against US Dollars is worth $1.40