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. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
valuable
functional currency
3 -210 billion (3 trillion)
more

2. What rate is used on the P&L?
liquidity and cash
End of Period Rate (SCO-4 rate)
directly or indirectly
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

3. US Treasuries is the second highest trading volume accounting for...
currency options and forward
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
21%
300 billion

4. Forward points is equal to...
5%
Spot price
spot price x interest differential
3 business days and beyond

5. The ticker symbol for the Chinese Yuan
CNY
End of Period Rate (SCO-4 rate)
Forward contracts and Options
two business days

6. A forward happens in...
Indirect quote
Oracle
3 business days and beyond
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

7. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
30%
1.60 - Because you can buy more dollars
3 business days and beyond
less

8. An ___________ expresses the value of one currency relative to another
B/S rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
an estimate of aggregate rate
exchange rate

9. 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?
APL rate
two business days
The currency of the primary economic environment in which the legal entity operates
5%

10. How does treasury accomplish its purpose?
weakens
B/S rate
Mitigates risks by using hedging techniques
1 share = 1/3 case

11. 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?
fx forward
CNY
1.40 - Because I would be able to buy more euros
13%

12. What is Revaluation?

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13. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Used to hedge against variability in expected future cash flows
two business days
direct
adverse fluctuations

14. Direct quote- _____________=USD
Forward contracts and Options
This means 1 Euro measured against US Dollars is worth $1.40
BS account balances
foreign currency* rate

15. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
lost
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
strengthens
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

16. 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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
is getting bigger
currency options and forward

17. Hedging instrument used in cash flow program is...
currency options and forward
1 share = 1/3 case
allow FX rate
Oracle

18. The currency ticker for the Sweden Kroner is?
China - Malaysia - Colombia - Chile - Argentina
downward slope
SEK
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

19. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
directly or indirectly
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
financial strength

20. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
exchange one currency for another
financial strength
Indirect quote
spot price x interest differential

21. How many currencies use Direct method of quoting?
The difference between hedge rate and final effective hedge rate
There are FOUR
1 Case = 2 pizzas
Indirect quote

22. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
exchange rate
P&L activity
average rate
China - Malaysia - Colombia - Chile - Argentina

23. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
What is happening
valuable
FX policy
British Pound - Australian Dollar - New Zealand Dollar - Euro

24. The timing of when we execute hedges drastically impacts the ____________ we achieve
Oracle
3 -210 billion (3 trillion)
B/S rate
average rate

25. The Foreign Exchange market is the __________ market in the world
Indirect quote
Current market price - spot - plus or minus the difference between the interest rates of the two countries
strengthens
largest - It is open 24 hours a day - except weekends

26. The current market price for any currency pair is referred to as ?
value
1.60 - Because you can buy more dollars
Spot price
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

27. Treasury's role is to identify risk - control to prevent erosion of...
largest - It is open 24 hours a day - except weekends
3 -210 billion (3 trillion)
financial strength
1USD

28. Hedging instrument used in Fair Value Hedge program is...
fx forward
translation
British Pound - Australian Dollar - New Zealand Dollar - Euro
BS account balances

29. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Forward Points
SEK
translation

30. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
two business days
largest - It is open 24 hours a day - except weekends
Pound strengthens
foreign exchange forward contract

31. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
liquidity and cash
direct
Government regulation and cost of hedging

32. What rate is used on the balance sheet?
value
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
12%
End of Period Rate (SCO-4 rate)

33. Where are revaluations done?
Forward contracts and Options
Oracle
actual weighted average contract rate
Mitigates risks by using hedging techniques

34. When is hedge rate published?
foreign exchange forward contract
The currency of the primary economic environment in which the legal entity operates
foreign currency* rate
6 weeks prior to Q/E

35. What are the four major FX accounting guidances?
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
is getting bigger
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
functional currency

36. What is local currency?

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37. In general EUR-USD is involved in roughly ___ of all FX volume
weakens
fx forward
SFAS 52
90%

38. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
F&O account 87503
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
British Pound - Australian Dollar - New Zealand Dollar - Euro

39. USD-JPY account for ____ of trading FX volume
an estimate of aggregate rate
AUD
China - Malaysia - Colombia - Chile - Argentina
13%

40. What does it mean to hedge?
two business days
interest rate differential
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Indirect quote

41. Australian currency code is...
AUD
liquidity and cash
1.60 - Because you can buy more dollars
average rate

42. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
5%
FX policy
Pound strengthens

43. EUR-USD currency pair accounts for about ____ of all FX volume
Treasury Daily Spot Rate
fx forward
spot price x interest differential
30%

44. How far in advance do we hedge?
Indirect quote
direct
currency options and forward
15 months in advance - layering on hedges through time

45. What are some of the reason not hedge at all or partially hedge in a few countries?
30%
Government regulation and cost of hedging
value
interest rate differential

46. Forward points multiply the exchange rate by the...
interest rate differential
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
21%
China - Malaysia - Colombia - Chile - Argentina

47. All other currency trading with USD accounts for ____ of FX volume
Spot price
21%
China - Malaysia - Colombia - Chile - Argentina
1.60 - Because you can buy more dollars

48. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
MXN - EUR - CHF
fx forward
1.60 - Because you can buy more dollars
British Pound - Australian Dollar - New Zealand Dollar - Euro

49. What are monetary accounts?
1USD
21%
13%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

50. Give an example of one way to hedge a price increase in gas prices...
15 months in advance - layering on hedges through time
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing