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. The ticker symbol for the Chinese Yuan
an estimate of aggregate rate
P&L activity
is getting bigger
CNY

2. Australian currency code is...
AUD
financial strength
3 -210 billion (3 trillion)
weakens

3. How does treasury accomplish its purpose?
currency options and forward
Oracle
financial risk
Mitigates risks by using hedging techniques

4. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Indirect quote
1 share = 1/3 case
1 Case = 2 pizzas
What is happening

5. Hedging instrument used in Fair Value Hedge program is...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Treasury Daily Spot Rate
The difference between hedge rate and final effective hedge rate
fx forward

6. What are the four major FX accounting guidances?
spot price x interest differential
exchange one currency for another
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Mitigates risks by using hedging techniques

7. USD-JPY account for ____ of trading FX volume
three digit ticker symbol ex: USD - United States Dollar
13%
China - Malaysia - Colombia - Chile - Argentina
B/S rate

8. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
three digit ticker symbol ex: USD - United States Dollar
value
SEK
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

9. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Forward contracts and Options
directly or indirectly
foreign exchange forward contract

10. 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
currency options and forward
allow FX rate
What is happening
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

11. What rate is used to book daily transactions?
foreign currency* rate
BRL
Treasury Daily Spot Rate
Forward Points

12. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
financial strategy and financial policy
weakens
Effective Hedge rate
Currency in which the entity reports results externally

13. Forward points multiply the exchange rate by the...
12%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
interest rate differential
Used to hedge against variability in expected future cash flows

14. What dictates minimum and maximum hedge percentages?
There are FOUR
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
FX policy
exchange rate

15. Treasury's role is to identify risk - control to prevent erosion of...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial strength
SEK
12%

16. What is cash flow used for?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
translation
downward slope
Used to hedge against variability in expected future cash flows

17. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
5%
value

18. What is Revaluation?

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19. What rate is used on the P&L?
Currency of the respective operating unit's country
End of Period Rate (SCO-4 rate)
BRL
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

20. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
3 business days and beyond
The calculation is the same - but instead of adding forward points you subtract
Forward contracts and Options

21. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Government regulation and cost of hedging
less
value
SFAS 52

22. B/S rate is used for revaluation of foreign currency transaction to...
3 business days and beyond
15 months in advance - layering on hedges through time
functional currency
is getting bigger

23. Hedging instrument used in cash flow program is...
spot price x interest differential
currency options and forward
value
1.60 - Because you can buy more dollars

24. ____________ - foreign currency/rate = USD
is getting bigger
12%
There are FOUR
Indirect quote

25. What are monetary accounts?
1 Case = 2 pizzas
Spot price
less
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

26. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
1 unit
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
more
strengthens

27. What are non-monetary accounts?
Currency in which the entity reports results externally
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

28. The currency ticker for the Sweden Kroner is?
SEK
less
3 business days and beyond
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

29. Where are revaluations done?
Oracle
There are FOUR
China - Malaysia - Colombia - Chile - Argentina
spot price x interest differential

30. An ___________ expresses the value of one currency relative to another
3 business days and beyond
exchange rate
Forward contracts and Options
What is happening

31. 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
Indirect quote
1 unit
downward slope
Treasury Daily Spot Rate

32. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
SFAS 52
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 -210 billion (3 trillion)
1 Case = 2 pizzas

33. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
direct
1.60 - Because you can buy more dollars
The calculation is the same - but instead of adding forward points you subtract
exchange one currency for another

34. What is the ticker symbol for Brazilian Real?
two business days
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
BRL
What is happening

35. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
liquidity and cash
largest - It is open 24 hours a day - except weekends
1 Case = 2 pizzas
direct

36. What is local currency?

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37. What instruments do we use to hedge?
1USD
Forward contracts and Options
B/S rate
spot price x interest differential

38. 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
End of Period Rate (SCO-4 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
1USD

39. A forward happens in...
valuable
Pound strengthens
3 business days and beyond
financial strategy and financial policy

40. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
lost
1.60 - Because you can buy more dollars
Indirect quote

41. 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?
1 share = 1/3 case
average rate
5%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

42. What is Fair Value hedge program used for?
1 Case = 2 pizzas
interest rate differential
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
21%

43. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
value
13%
average rate

44. Forward points is equal to...
What is happening
1USD
lost
spot price x interest differential

45. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
BRL
Forward contracts and Options
an estimate of aggregate rate
FX policy

46. 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
strengthens
downward slope
Pound strengthens
F&O account 87503

47. How far in advance do we hedge?
13%
15 months in advance - layering on hedges through time
1 Case = 2 pizzas
1USD

48. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
three digit ticker symbol ex: USD - United States Dollar
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Currency in which the entity reports results externally

49. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1.60 - Because you can buy more dollars
1 unit
B/S rate
strengthens

50. A Spot happens in...
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
1.40 - Because I would be able to buy more euros
two business days
Pound strengthens