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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. A Spot happens in...
1 share = 1/3 case
lost
two business days
British Pound - Australian Dollar - New Zealand Dollar - Euro

2. If 1 pizza = 15 USD then ____ = 1/15 pizza
This means 1 Euro measured against US Dollars is worth $1.40
1USD
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
Oracle

3. USD-JPY account for ____ of trading FX volume
3 -210 billion (3 trillion)
foreign exchange forward contract
average rate
13%

4. Revaluation can be hedged - while ___________ cannot be hedged
AUD
exchange one currency for another
translation
an estimate of aggregate rate

5. What would happen if the US interest rate was bigger than Mexico?
1 share = 1/3 case
more
The calculation is the same - but instead of adding forward points you subtract
foreign exchange forward contract

6. What rate is used on the balance sheet?
Forward Points
an estimate of aggregate rate
Spot price
End of Period Rate (SCO-4 rate)

7. Direct quote- _____________=USD
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
FX policy
foreign currency* rate

8. The offset of revaluation is recorded to...
F&O account 87503
BS account balances
largest - It is open 24 hours a day - except weekends
13%

9. What rate is used on the P&L?
BS account balances
spot price x interest differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
P&L activity

10. What dictates minimum and maximum hedge percentages?
adverse fluctuations
British Pound - Australian Dollar - New Zealand Dollar - Euro
less
FX policy

11. What is cash flow used for?
Currency in which the entity reports results externally
average rate
Used to hedge against variability in expected future cash flows
British Pound - Australian Dollar - New Zealand Dollar - Euro

12. Treasury's role is to identify risk - control to prevent erosion of...
three digit ticker symbol ex: USD - United States Dollar
financial strength
functional currency
valuable

13. What is Fair Value hedge program used for?
21%
Treasury Daily Spot Rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
interest rate differential

14. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
Spot price
translation
1.60 - Because you can buy more dollars
SEK

15. An ___________ expresses the value of one currency relative to another
What is happening
exchange rate
interest rate differential
Forward Points

16. How is the price of the forward contract determined?
1.60 - Because you can buy more dollars
financial strength
1 share = 1/3 case
Current market price - spot - plus or minus the difference between the interest rates of the two countries

17. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
30%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
actual weighted average contract rate

18. Australian currency code is...
three digit ticker symbol ex: USD - United States Dollar
AUD
Indirect quote
FX policy

19. 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%
interest rate differential
15 months in advance - layering on hedges through time
AUD

20. In general EUR-USD is involved in roughly ___ of all FX volume
allow FX rate
90%
Government regulation and cost of hedging
SEK

21. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
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
foreign exchange forward contract
MXN - EUR - CHF

22. US Treasuries is the second highest trading volume accounting for...
13%
Used to hedge against variability in expected future cash flows
300 billion
FX policy

23. Hedging instrument used in Fair Value Hedge program is...
Government regulation and cost of hedging
SFAS 52
fx forward
What is happening

24. What is the trading in volume for FX?
1.60 - Because you can buy more dollars
F&O account 87503
3 -210 billion (3 trillion)
Indirect quote

25. The timing of when we execute hedges drastically impacts the ____________ we achieve
financial risk
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
5%
average rate

26. What are non-monetary accounts?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
China - Malaysia - Colombia - Chile - Argentina
is getting bigger
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

27. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
foreign currency* rate
15 months in advance - layering on hedges through time
an estimate of aggregate rate
financial strategy and financial policy

28. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
fx forward
interest rate differential
APL rate

29. The current market price for any currency pair is referred to as ?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
B/S rate
average rate
Spot price

30. 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?
valuable
1.40 - Because I would be able to buy more euros
End of Period Rate (SCO-4 rate)
China - Malaysia - Colombia - Chile - Argentina

31. ____________ is used for translation of foreign currency P&L to Reporting currency?
financial strategy and financial policy
P&L activity
Forward contracts and Options
APL rate

32. What currencies use Direct method of quoting?
interest rate differential
British Pound - Australian Dollar - New Zealand Dollar - Euro
SEK
AUD

33. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
downward slope
Effective Hedge rate
China - Malaysia - Colombia - Chile - Argentina
financial strategy and financial policy

34. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
interest rate differential
lost
exchange one currency for another
BRL

35. What is Revaluation?

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36. What is the ticker symbol for Brazilian Real?
13%
3 -210 billion (3 trillion)
actual weighted average contract rate
BRL

37. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
P&L activity
more
SFAS 52
Spot price

38. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
adverse fluctuations
15 months in advance - layering on hedges through time
1 share = 1/3 case
actual weighted average contract rate

39. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
3 business days and beyond
This means 1 Euro measured against US Dollars is worth $1.40
CNY
lost

40. 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...
Mitigates risks by using hedging techniques
Pound strengthens
There are FOUR
is getting bigger

41. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
MXN - EUR - CHF
direct
B/S rate
three digit ticker symbol ex: USD - United States Dollar

42. What rate is used to book daily transactions?
direct
1USD
Treasury Daily Spot Rate
foreign exchange forward contract

43. The difference in interest rate is referred to as...
Spot price
Forward Points
APL rate
Pound strengthens

44. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
adverse fluctuations
SEK
Used to hedge against variability in expected future cash flows

45. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
adverse fluctuations
Currency in which the entity reports results externally
financial strength
less

46. What are the exceptions to the ticker naming convention?
less
There are FOUR
1.40 - Because I would be able to buy more euros
MXN - EUR - CHF

47. What are the four major FX accounting guidances?
more
average rate
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

48. What is the purpose of hedging?
Treasury Daily Spot Rate
30%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
6 weeks prior to Q/E

49. 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
12%
value
downward slope
What is happening

50. What instruments do we use to hedge?
Forward contracts and Options
End of Period Rate (SCO-4 rate)
foreign currency* rate
Effective Hedge rate