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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 Revaluation?

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2. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
Forward Points
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Pound strengthens

3. How does treasury accomplish its purpose?
FX policy
BRL
Mitigates risks by using hedging techniques
APL rate

4. The Foreign Exchange market is the __________ market in the world
fx forward
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
CNY

5. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
value
1.40 - Because I would be able to buy more euros
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

6. What is cash flow used for?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
foreign currency* rate
Used to hedge against variability in expected future cash flows
3 business days and beyond

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
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
downward slope
fx forward
average rate

8. USD-JPY account for ____ of trading FX volume
BRL
BS account balances
300 billion
13%

9. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Forward Points
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
What is happening
allow FX rate

10. When is hedge rate published?
average rate
What is happening
value
6 weeks prior to Q/E

11. Hedging instrument used in cash flow program is...
B/S rate
currency options and forward
Currency of the respective operating unit's country
APL rate

12. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
F&O account 87503
300 billion
exchange one currency for another

13. The rules for adding or subtracting forward points depend on whether it is quoted...
foreign exchange forward contract
21%
directly or indirectly
Oracle

14. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
1USD
The currency of the primary economic environment in which the legal entity operates
1.60 - Because you can buy more dollars

15. What is Functional Currency?
1 unit
The currency of the primary economic environment in which the legal entity operates
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
financial strategy and financial policy

16. What would happen if the US interest rate was bigger than Mexico?
15 months in advance - layering on hedges through time
300 billion
MXN - EUR - CHF
The calculation is the same - but instead of adding forward points you subtract

17. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
translation
British Pound - Australian Dollar - New Zealand Dollar - Euro
less
allow FX rate

18. 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
1 unit
spot price x interest differential
F&O account 87503

19. US Treasuries is the second highest trading volume accounting for...
300 billion
British Pound - Australian Dollar - New Zealand Dollar - Euro
1.40 - Because I would be able to buy more euros
strengthens

20. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
weakens
financial strategy and financial policy
China - Malaysia - Colombia - Chile - Argentina

21. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
directly or indirectly
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
an estimate of aggregate rate

22. What dictates minimum and maximum hedge percentages?
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
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
FX policy
1.40 - Because I would be able to buy more euros

23. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
This means 1 Euro measured against US Dollars is worth $1.40
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 Case = 2 pizzas
Forward contracts and Options

24. Give some examples of countries where its hard to hedge?
1.60 - Because you can buy more dollars
directly or indirectly
China - Malaysia - Colombia - Chile - Argentina
liquidity and cash

25. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
strengthens
1 Case = 2 pizzas
less
1 share = 1/3 case

26. What are the exceptions to the ticker naming convention?
1.60 - Because you can buy more dollars
fx forward
MXN - EUR - CHF
12%

27. The currency ticker for the Sweden Kroner is?
What is happening
spot price x interest differential
AUD
SEK

28. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Treasury Daily Spot Rate
an estimate of aggregate rate
less
weakens

29. What is local currency?

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30. If 1 pizza = 15 USD then ____ = 1/15 pizza
21%
three digit ticker symbol ex: USD - United States Dollar
China - Malaysia - Colombia - Chile - Argentina
1USD

31. Hedging instrument used in Fair Value Hedge program is...
actual weighted average contract rate
End of Period Rate (SCO-4 rate)
fx forward
value

32. The current market price for any currency pair is referred to as ?
1 Case = 2 pizzas
Spot price
exchange rate
What is happening

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

34. What is currency Translation?

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35. The ticker symbol for the Chinese Yuan
3 -210 billion (3 trillion)
1.60 - Because you can buy more dollars
direct
CNY

36. Australian currency code is...
average rate
AUD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
currency options and forward

37. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
SEK
value
6 weeks prior to Q/E

38. B/S rate is used for revaluation of foreign currency transaction to...
B/S rate
1.40 - Because I would be able to buy more euros
financial risk
functional currency

39. What is Fair Value hedge program used for?
6 weeks prior to Q/E
1 share = 1/3 case
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

40. GBP-USD account for ____ of trading FX volume
12%
financial risk
APL rate
foreign exchange forward contract

41. What rate is used to book daily transactions?
Indirect quote
Treasury Daily Spot Rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
1 Case = 2 pizzas

42. 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?
15 months in advance - layering on hedges through time
13%
5%
more

43. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
The calculation is the same - but instead of adding forward points you subtract
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
13%

44. A Spot happens in...
functional currency
BS account balances
two business days
SFAS 52

45. What are monetary accounts?
currency options and forward
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1USD
What is happening

46. Forward points is equal to...
spot price x interest differential
The difference between hedge rate and final effective hedge rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
BRL

47. 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
Effective Hedge rate
China - Malaysia - Colombia - Chile - Argentina
There are FOUR

48. The difference in interest rate is referred to as...
more
adverse fluctuations
Forward Points
1.60 - Because you can buy more dollars

49. Revaluation can be hedged - while ___________ cannot be hedged
Used to hedge against variability in expected future cash flows
translation
more
Currency in which the entity reports results externally

50. ____________ should be denominated in the currency they will either be paid or received in...
fx forward
Currency of the respective operating unit's country
BS account balances
1 Case = 2 pizzas