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 local currency?

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2. Treasury's role is to identify risk - control to prevent erosion of...
financial strategy and financial policy
an estimate of aggregate rate
financial strength
Currency of the respective operating unit's country

3. How does treasury accomplish its purpose?
Government regulation and cost of hedging
direct
Mitigates risks by using hedging techniques
5%

4. ____________ - foreign currency/rate = USD
Indirect quote
exchange one currency for another
Forward Points
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

5. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
financial strategy and financial policy
What is happening
Treasury Daily Spot Rate
1 share = 1/3 case

6. All other currency trading with USD accounts for ____ of FX volume
downward slope
21%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
What is happening

7. When is hedge rate published?
two business days
6 weeks prior to Q/E
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Forward contracts and Options

8. Give some examples of countries where its hard to hedge?
APL rate
financial strength
BS account balances
China - Malaysia - Colombia - Chile - Argentina

9. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
6 weeks prior to Q/E
The calculation is the same - but instead of adding forward points you subtract
Treasury Daily Spot Rate
direct

10. Forward points multiply the exchange rate by the...
direct
interest rate differential
30%
1.60 - Because you can buy more dollars

11. 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
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
largest - It is open 24 hours a day - except weekends
three digit ticker symbol ex: USD - United States Dollar

12. Treasury is responsible for banking requirements - funding for the business and managing...
foreign currency* rate
financial risk
BRL
What is happening

13. What is Functional Currency?
direct
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The currency of the primary economic environment in which the legal entity operates
actual weighted average contract rate

14. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
more
liquidity and cash
valuable
1 Case = 2 pizzas

15. Forward points is equal to...
translation
interest rate differential
spot price x interest differential
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

16. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
weakens
MXN - EUR - CHF
less
Pound strengthens

17. What are some of the reason not hedge at all or partially hedge in a few countries?
fx forward
liquidity and cash
Government regulation and cost of hedging
two business days

18. Hedging instrument used in Fair Value Hedge program is...
Oracle
fx forward
foreign currency* rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

19. 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
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
allow FX rate
12%
downward slope

20. What is the purpose of hedging?
15 months in advance - layering on hedges through time
financial strategy and financial policy
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
three digit ticker symbol ex: USD - United States Dollar

21. What rate is used to book daily transactions?
direct
The difference between hedge rate and final effective hedge rate
downward slope
Treasury Daily Spot Rate

22. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Oracle
foreign exchange forward contract
interest rate differential

23. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
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
Indirect quote
three digit ticker symbol ex: USD - United States Dollar
direct

24. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
foreign exchange forward contract
SEK
Effective Hedge rate
There are FOUR

25. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
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
valuable
adverse fluctuations
financial strategy and financial policy

26. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
exchange one currency for another
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
an estimate of aggregate rate

27. Hedging instrument used in cash flow program is...
strengthens
currency options and forward
1USD
financial strategy and financial policy

28. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
Pound strengthens
exchange rate
fx forward

29. A forward happens in...
two business days
3 business days and beyond
value
There are FOUR

30. How do you read EUR-USD = 1.40
largest - It is open 24 hours a day - except weekends
This means 1 Euro measured against US Dollars is worth $1.40
3 business days and beyond
Effective Hedge rate

31. What is the ticker symbol for Brazilian Real?
BRL
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
21%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

32. An ___________ expresses the value of one currency relative to another
weakens
CNY
exchange rate
1.60 - Because you can buy more dollars

33. 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
Forward Points
Pound strengthens
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
90%

34. 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?
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
lost
BS account balances

35. 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
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SFAS 52
currency options and forward

36. The current market price for any currency pair is referred to as ?
Forward Points
Spot price
translation
300 billion

37. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
currency options and forward
1USD
more

38. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
The currency of the primary economic environment in which the legal entity operates
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
functional currency

39. Treasury ensures that companies have ____________ to meet its obligations
13%
liquidity and cash
weakens
adverse fluctuations

40. __________ is used for translation of foreign currency B/S to reporting currency
financial risk
B/S rate
downward slope
strengthens

41. What is Revaluation?

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42. The difference in interest rate is referred to as...
BRL
BS account balances
90%
Forward Points

43. Direct quote- _____________=USD
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
What is happening
an estimate of aggregate rate
foreign currency* rate

44. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
30%
Currency of the respective operating unit's country

45. Revaluation can be hedged - while ___________ cannot be hedged
translation
financial strategy and financial policy
F&O account 87503
foreign currency* rate

46. 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?
5%
APL rate
financial risk
MXN - EUR - CHF

47. What is cash flow used for?
interest rate differential
Used to hedge against variability in expected future cash flows
6 weeks prior to Q/E
300 billion

48. What are the four major FX accounting guidances?
allow FX rate
Oracle
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
AUD

49. The ticker symbol for the Chinese Yuan
Forward Points
British Pound - Australian Dollar - New Zealand Dollar - Euro
CNY
The difference between hedge rate and final effective hedge rate

50. What would happen if the US interest rate was bigger than Mexico?
fx forward
average rate
The calculation is the same - but instead of adding forward points you subtract
30%