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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. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
Forward contracts and Options
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
What is happening
exchange one currency for another

2. The timing of when we execute hedges drastically impacts the ____________ we achieve
three digit ticker symbol ex: USD - United States Dollar
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
average rate
SEK

3. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
Currency of the respective operating unit's country
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 are carried at historical rates at which they were booked (fixed assets - inventory)

4. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
5%
There are FOUR
weakens
more

5. What is the trading in volume for FX?
downward slope
China - Malaysia - Colombia - Chile - Argentina
3 -210 billion (3 trillion)
1 share = 1/3 case

6. ____________ - foreign currency/rate = USD
functional currency
directly or indirectly
Indirect quote
actual weighted average contract rate

7. What does it mean to hedge?
exchange one currency for another
Used to hedge against variability in expected future cash flows
6 weeks prior to Q/E
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

8. All other currency trading with USD accounts for ____ of FX volume
Oracle
value
21%
15 months in advance - layering on hedges through time

9. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
F&O account 87503
CNY
exchange rate
three digit ticker symbol ex: USD - United States Dollar

10. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
This means 1 Euro measured against US Dollars is worth $1.40
AUD

11. __________ is used for translation of foreign currency B/S to reporting currency
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1.40 - Because I would be able to buy more euros
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
B/S rate

12. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
Used to hedge against variability in expected future cash flows
1USD
financial strength

13. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
translation
1 unit
Indirect quote

14. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
CNY
foreign exchange forward contract
Indirect quote
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

15. How far in advance do we hedge?
15 months in advance - layering on hedges through time
End of Period Rate (SCO-4 rate)
directly or indirectly
two business days

16. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
weakens
1.60 - Because you can buy more dollars
valuable
Mitigates risks by using hedging techniques

17. What is local currency?

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18. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
fx forward
adverse fluctuations
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
This means 1 Euro measured against US Dollars is worth $1.40

19. What dictates minimum and maximum hedge percentages?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
FX policy
two business days
less

20. When is hedge rate published?
three digit ticker symbol ex: USD - United States Dollar
6 weeks prior to Q/E
There are FOUR
exchange rate

21. What are the exceptions to the ticker naming convention?
weakens
Currency of the respective operating unit's country
MXN - EUR - CHF
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

22. The difference in interest rate is referred to as...
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
Forward Points
SEK
1 Case = 2 pizzas

23. EUR-USD currency pair accounts for about ____ of all FX volume
30%
financial risk
actual weighted average contract rate
300 billion

24. What are non-monetary accounts?
3 -210 billion (3 trillion)
valuable
SFAS 52
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

25. The currency ticker for the Sweden Kroner is?
SEK
exchange rate
adverse fluctuations
two business days

26. The Foreign Exchange market is the __________ market in the world
F&O account 87503
Treasury Daily Spot Rate
valuable
largest - It is open 24 hours a day - except weekends

27. Treasury is responsible for banking requirements - funding for the business and managing...
less
The difference between hedge rate and final effective hedge rate
downward slope
financial risk

28. 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
downward slope
15 months in advance - layering on hedges through time
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

29. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
BRL
exchange one currency for another
less

30. Hedging instrument used in cash flow program is...
liquidity and cash
End of Period Rate (SCO-4 rate)
currency options and forward
two business days

31. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Spot price
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The difference between hedge rate and final effective hedge rate
an estimate of aggregate rate

32. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
6 weeks prior to Q/E
strengthens
less
Spot price

33. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Currency in which the entity reports results externally
1 unit
12%
valuable

34. What are some of the reason not hedge at all or partially hedge in a few countries?
There are FOUR
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Government regulation and cost of hedging
financial risk

35. Treasury's role is to identify risk - control to prevent erosion 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
financial strength
Spot price
foreign currency* rate

36. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
financial risk
Indirect quote
5%

37. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
foreign exchange forward contract
interest rate differential
value

38. What rate is used on the P&L?
There are FOUR
British Pound - Australian Dollar - New Zealand Dollar - Euro
functional currency
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

39. US Treasuries is the second highest trading volume accounting for...
30%
Effective Hedge rate
fx forward
300 billion

40. ____________ is used for translation of foreign currency P&L to Reporting currency?
90%
fx forward
British Pound - Australian Dollar - New Zealand Dollar - Euro
APL rate

41. How is the price of the forward contract determined?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
The difference between hedge rate and final effective hedge rate
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

42. What is reporting 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
Currency in which the entity reports results externally
China - Malaysia - Colombia - Chile - Argentina
AUD

43. What instruments do we use to hedge?
APL rate
The currency of the primary economic environment in which the legal entity operates
Forward contracts and Options
value

44. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
three digit ticker symbol ex: USD - United States Dollar
direct
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

45. 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...
actual weighted average contract rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
is getting bigger
translation

46. 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?
1.40 - Because I would be able to buy more euros
functional currency
adverse fluctuations
Current market price - spot - plus or minus the difference between the interest rates of the two countries

47. What is the ticker symbol for Brazilian Real?
F&O account 87503
The difference between hedge rate and final effective hedge rate
BRL
functional currency

48. Hedging instrument used in Fair Value Hedge program is...
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro
300 billion
fx forward

49. A forward happens in...
There are FOUR
3 business days and beyond
functional currency
actual weighted average contract rate

50. If 1 pizza = 15 USD then ____ = 1/15 pizza
Forward Points
1USD
directly or indirectly
interest rate differential