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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. The timing of when we execute hedges drastically impacts the ____________ we achieve
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
average rate
adverse fluctuations
This means 1 Euro measured against US Dollars is worth $1.40

2. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
spot price x interest differential
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
weakens

3. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
financial strength
foreign exchange forward contract
BRL
1 unit

4. GBP-USD account for ____ of trading FX volume
13%
12%
financial strategy and financial policy
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

5. The currency ticker for the Sweden Kroner is?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Oracle
1.40 - Because I would be able to buy more euros
SEK

6. How is the hedge rate variance calculated?
China - Malaysia - Colombia - Chile - Argentina
The difference between hedge rate and final effective hedge rate
SFAS 52
two business days

7. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
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
BS account balances

8. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
financial strategy and financial policy
adverse fluctuations
15 months in advance - layering on hedges through time

9. Treasury is responsible for managing companies funds and determining the firms'...
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
translation
Treasury Daily Spot Rate
financial strategy and financial policy

10. What are monetary accounts?
The calculation is the same - but instead of adding forward points you subtract
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
translation

11. USD-JPY account for ____ of trading FX volume
B/S rate
13%
The difference between hedge rate and final effective hedge rate
translation

12. ____________ should be denominated in the currency they will either be paid or received in...
functional currency
BS account balances
weakens
financial strength

13. 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
downward slope
Used to hedge against variability in expected future cash flows
13%
directly or indirectly

14. What is Fair Value hedge program used for?
direct
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
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
British Pound - Australian Dollar - New Zealand Dollar - Euro

15. How many currencies use Direct method of quoting?
There are FOUR
The currency of the primary economic environment in which the legal entity operates
currency options and forward
Mitigates risks by using hedging techniques

16. In general EUR-USD is involved in roughly ___ of all FX volume
90%
1USD
is getting bigger
Currency in which the entity reports results externally

17. The difference in interest rate is referred to as...
Forward Points
less
Government regulation and cost of hedging
allow FX rate

18. The current market price for any currency pair is referred to as ?
21%
The difference between hedge rate and final effective hedge rate
13%
Spot price

19. US Treasuries is the second highest trading volume accounting for...
300 billion
directly or indirectly
6 weeks prior to Q/E
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

20. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
AUD
direct
downward slope
SFAS 52

21. What is the purpose of hedging?
Effective Hedge rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
F&O account 87503

22. What is cash flow used for?
21%
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
Used to hedge against variability in expected future cash flows

23. Give some examples of countries where its hard to hedge?
300 billion
Currency of the respective operating unit's country
China - Malaysia - Colombia - Chile - Argentina
3 business days and beyond

24. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
currency options and forward
weakens
less

25. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
average rate
1 Case = 2 pizzas
Indirect quote
The currency of the primary economic environment in which the legal entity operates

26. EUR-USD currency pair accounts for about ____ of all FX volume
30%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
currency options and forward
an estimate of aggregate rate

27. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
value
What is happening
British Pound - Australian Dollar - New Zealand Dollar - Euro

28. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
directly or indirectly
fx forward
value

29. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
actual weighted average contract rate
financial strength
Current market price - spot - plus or minus the difference between the interest rates of the two countries

30. Forward points multiply the exchange rate by the...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
interest rate differential
less
MXN - EUR - CHF

31. An ___________ expresses the value of one currency relative to another
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
exchange rate
two business days
allow FX rate

32. The Foreign Exchange market is the __________ market in the world
What is happening
exchange rate
largest - It is open 24 hours a day - except weekends
Indirect quote

33. When is hedge rate published?
liquidity and cash
F&O account 87503
6 weeks prior to Q/E
Used to hedge against variability in expected future cash flows

34. Treasury is responsible for banking requirements - funding for the business and managing...
interest rate differential
BS account balances
financial risk
End of Period Rate (SCO-4 rate)

35. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Currency in which the entity reports results externally
functional currency
value
13%

36. 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
Pound strengthens
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
three digit ticker symbol ex: USD - United States Dollar
interest rate differential

37. ____________ - foreign currency/rate = USD
Indirect quote
1 unit
Government regulation and cost of hedging
Current market price - spot - plus or minus the difference between the interest rates of the two countries

38. The ticker symbol for the Chinese Yuan
functional currency
CNY
Pound strengthens
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

39. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
liquidity and cash
China - Malaysia - Colombia - Chile - Argentina
three digit ticker symbol ex: USD - United States Dollar
13%

40. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
1USD
Oracle
End of Period Rate (SCO-4 rate)

41. What dictates minimum and maximum hedge percentages?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1.40 - Because I would be able to buy more euros
FX policy
average rate

42. What are non-monetary accounts?
MXN - EUR - CHF
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
3 -210 billion (3 trillion)
is getting bigger

43. What instruments do we use to hedge?
Forward contracts and Options
financial strategy and financial policy
Spot price
There are FOUR

44. Give an example of one way to hedge a price increase in gas prices...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
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
SEK

45. B/S rate is used for revaluation of foreign currency transaction to...
exchange one currency for another
functional currency
Forward contracts and Options
largest - It is open 24 hours a day - except weekends

46. What is local currency?

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47. What is Functional Currency?
B/S rate
The currency of the primary economic environment in which the legal entity operates
Currency in which the entity reports results externally
spot price x interest differential

48. What rate is used on the P&L?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1 share = 1/3 case
fx forward
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

49. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
translation
is getting bigger
P&L activity
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

50. 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?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
5%
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
This means 1 Euro measured against US Dollars is worth $1.40