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?

2. How many currencies use Direct method of quoting?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Current market price - spot - plus or minus the difference between the interest rates of the two countries
End of Period Rate (SCO-4 rate)
There are FOUR

3. 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%
BRL
FX policy

4. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
currency options and forward
P&L activity
weakens
strengthens

5. The offset of revaluation is recorded to...
two business days
Treasury Daily Spot Rate
End of Period Rate (SCO-4 rate)
F&O account 87503

6. ____________ - foreign currency/rate = USD
SFAS 52
Treasury Daily Spot Rate
Indirect quote
adverse fluctuations

7. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
6 weeks prior to Q/E
value
BRL

8. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Forward Points
1.40 - Because I would be able to buy more euros
Indirect quote

9. What is currency Translation?

10. If 1 pizza = 15 USD then ____ = 1/15 pizza
strengthens
Indirect quote
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
1USD

11. What are the four major FX accounting guidances?
The difference between hedge rate and final effective hedge rate
foreign currency* rate
AUD
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

12. What is Functional Currency?
direct
The currency of the primary economic environment in which the legal entity operates
exchange rate
China - Malaysia - Colombia - Chile - Argentina

13. The difference in interest rate is referred to as...
Indirect quote
Forward Points
Used to hedge against variability in expected future cash flows
MXN - EUR - CHF

14. What rate is used on the balance sheet?
F&O account 87503
30%
End of Period Rate (SCO-4 rate)
financial strength

15. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
is getting bigger
BS account balances
strengthens
1USD

16. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
exchange one currency for another
allow FX rate
F&O account 87503

17. Hedging instrument used in Fair Value Hedge program is...
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
fx forward
two business days

18. Australian currency code is...
1.60 - Because you can buy more dollars
AUD
1 Case = 2 pizzas
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

19. The ticker symbol for the Chinese Yuan
CNY
AUD
actual weighted average contract rate
financial strength

20. 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...
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
1 unit
SEK
is getting bigger

21. Where are revaluations done?
300 billion
is getting bigger
less
Oracle

22. How is the price of the forward contract determined?
direct
Current market price - spot - plus or minus the difference between the interest rates of the two countries
an estimate of aggregate rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

23. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
financial strength
actual weighted average contract rate
exchange one currency for another
spot price x interest differential

24. What is the trading in volume for FX?
1 Case = 2 pizzas
liquidity and cash
three digit ticker symbol ex: USD - United States Dollar
3 -210 billion (3 trillion)

25. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
financial strategy and financial policy
1.60 - Because you can buy more dollars
valuable
two business days

26. In general EUR-USD is involved in roughly ___ of all FX volume
SFAS 52
90%
three digit ticker symbol ex: USD - United States Dollar
The calculation is the same - but instead of adding forward points you subtract

27. __________ is used for translation of foreign currency B/S to reporting currency
value
B/S rate
The calculation is the same - but instead of adding forward points you subtract
BRL

28. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
an estimate of aggregate rate
1 share = 1/3 case
Indirect quote
financial strategy and financial policy

29. USD-JPY account for ____ of trading FX volume
13%
6 weeks prior to Q/E
Government regulation and cost of hedging
Treasury Daily Spot Rate

30. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
End of Period Rate (SCO-4 rate)
There are FOUR
more
Forward Points

31. What is the purpose of hedging?
1.60 - Because you can buy more dollars
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
average rate
1 Case = 2 pizzas

32. What is the ticker symbol for Brazilian Real?
BRL
liquidity and cash
more
21%

33. EUR-USD currency pair accounts for about ____ of all FX volume
30%
China - Malaysia - Colombia - Chile - Argentina
Forward Points
B/S rate

34. 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
15 months in advance - layering on hedges through time
1 Case = 2 pizzas
Indirect quote
downward slope

35. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
strengthens
Currency in which the entity reports results externally
more
What is happening

36. How far in advance do we hedge?
15 months in advance - layering on hedges through time
exchange one currency for another
300 billion
Forward Points

37. How is the hedge rate variance calculated?
B/S rate
an estimate of aggregate rate
The difference between hedge rate and final effective hedge rate
MXN - EUR - CHF

38. 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
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
foreign currency* rate
foreign exchange forward contract

39. What rate is used to book daily transactions?
Government regulation and cost of hedging
There are FOUR
Treasury Daily Spot Rate
Currency in which the entity reports results externally

40. The rules for adding or subtracting forward points depend on whether it is quoted...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
liquidity and cash
directly or indirectly

41. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
21%
foreign exchange forward contract
1 Case = 2 pizzas
1.60 - Because you can buy more dollars

42. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
downward slope
Treasury Daily Spot Rate
direct
functional currency

43. What is cash flow used for?
Used to hedge against variability in expected future cash flows
financial strength
12%
5%

44. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
exchange one currency for another
F&O account 87503
functional currency

45. Direct quote- _____________=USD
Pound strengthens
foreign currency* rate
3 -210 billion (3 trillion)
an estimate of aggregate rate

46. Hedging instrument used in cash flow program is...
APL rate
currency options and forward
13%
exchange rate

47. An ___________ expresses the value of one currency relative to another
downward slope
exchange rate
SFAS 52
Oracle

48. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Forward Points
30%
Oracle
less

49. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
Effective Hedge rate
1.60 - Because you can buy more dollars
The currency of the primary economic environment in which the legal entity operates
The difference between hedge rate and final effective hedge rate

50. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
F&O account 87503
1.40 - Because I would be able to buy more euros
exchange one currency for another
functional currency