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 dictates minimum and maximum hedge percentages?
actual weighted average contract 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
liquidity and cash
FX policy

2. 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?
downward slope
B/S rate
CNY
5%

3. __________ is used for translation of foreign currency B/S to reporting currency
liquidity and cash
B/S rate
Oracle
exchange rate

4. Direct quote- _____________=USD
15 months in advance - layering on hedges through time
5%
foreign currency* rate
12%

5. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
5%
Currency of the respective operating unit's country
weakens
BRL

6. Where are revaluations done?
Spot price
3 business days and beyond
Oracle
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

7. What are some of the reason not hedge at all or partially hedge in a few countries?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
End of Period Rate (SCO-4 rate)
foreign currency* rate
Government regulation and cost of hedging

8. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
The currency of the primary economic environment in which the legal entity operates
21%
downward slope

9. What is local currency?

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10. USD-JPY account for ____ of trading FX volume
13%
translation
lost
AUD

11. Forward points multiply the exchange rate by the...
interest rate differential
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
exchange rate
1.60 - Because you can buy more dollars

12. The offset of revaluation is recorded to...
adverse fluctuations
F&O account 87503
1 unit
300 billion

13. GBP-USD account for ____ of trading FX volume
an estimate of aggregate rate
12%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
AUD

14. What are non-monetary accounts?
12%
1.60 - Because you can buy more dollars
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
China - Malaysia - Colombia - Chile - Argentina

15. Treasury is responsible for managing companies funds and determining the firms'...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
financial strategy and financial policy
exchange rate
AUD

16. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
functional currency
downward slope
more
adverse fluctuations

17. How far in advance do we hedge?
currency options and forward
15 months in advance - layering on hedges through time
more
End of Period Rate (SCO-4 rate)

18. 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
strengthens
21%
financial strategy and financial policy

19. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
P&L activity
21%
strengthens
1.40 - Because I would be able to buy more euros

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...
End of Period Rate (SCO-4 rate)
allow FX rate
foreign currency* rate
is getting bigger

21. What is Revaluation?

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22. Treasury's role is to identify risk - control to prevent erosion of...
allow FX rate
Treasury Daily Spot Rate
lost
financial strength

23. The Foreign Exchange market is the __________ market in the world
FX policy
Used to hedge against variability in expected future cash flows
more
largest - It is open 24 hours a day - except weekends

24. What are monetary accounts?
6 weeks prior to Q/E
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1 unit
financial risk

25. The timing of when we execute hedges drastically impacts the ____________ we achieve
financial risk
Used to hedge against variability in expected future cash flows
BRL
average rate

26. A Spot happens in...
two business days
spot price x interest differential
Used to hedge against variability in expected future cash flows
Government regulation and cost of hedging

27. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
1 unit
direct
valuable
3 -210 billion (3 trillion)

28. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
exchange one currency for another
1.60 - Because you can buy more dollars
less
Treasury Daily Spot Rate

29. What is the trading in volume for FX?
financial risk
downward slope
valuable
3 -210 billion (3 trillion)

30. All other currency trading with USD accounts for ____ of FX volume
three digit ticker symbol ex: USD - United States Dollar
fx forward
direct
21%

31. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 share = 1/3 case
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
This means 1 Euro measured against US Dollars is worth $1.40
1 unit

32. The ticker symbol for the Chinese Yuan
Government regulation and cost of hedging
CNY
3 -210 billion (3 trillion)
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

33. What would happen if the US interest rate was bigger than Mexico?
13%
The calculation is the same - but instead of adding forward points you subtract
direct
value

34. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
F&O account 87503
AUD
SEK

35. EUR-USD currency pair accounts for about ____ of all FX volume
F&O account 87503
30%
300 billion
is getting bigger

36. How is the price of the forward contract determined?
12%
1 unit
1 Case = 2 pizzas
Current market price - spot - plus or minus the difference between the interest rates of the two countries

37. How is the hedge rate variance calculated?
foreign currency* rate
Forward Points
The difference between hedge rate and final effective hedge rate
Mitigates risks by using hedging techniques

38. Revaluation can be hedged - while ___________ cannot be hedged
BRL
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Effective Hedge rate
translation

39. The current market price for any currency pair is referred to as ?
Spot price
The currency of the primary economic environment in which the legal entity operates
exchange one currency for another
AUD

40. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
The calculation is the same - but instead of adding forward points you subtract
exchange one currency for another
downward slope
Oracle

41. 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
APL rate
Forward contracts and Options
downward slope
Forward Points

42. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
BRL
value
translation

43. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
3 business days and beyond
1 share = 1/3 case
less

44. What instruments do we use to hedge?
Government regulation and cost of hedging
MXN - EUR - CHF
Forward contracts and Options
financial risk

45. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
actual weighted average contract rate
more
Effective Hedge rate
Forward contracts and Options

46. What is Fair Value hedge program used for?
90%
15 months in advance - layering on hedges through time
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Indirect quote

47. What currencies use Direct method of quoting?
largest - It is open 24 hours a day - except weekends
spot price x interest differential
British Pound - Australian Dollar - New Zealand Dollar - Euro
two business days

48. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
1 Case = 2 pizzas
liquidity and cash
financial strategy and financial policy

49. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
an estimate of aggregate rate
Currency in which the entity reports results externally
Government regulation and cost of hedging

50. If 1 pizza = 15 USD then ____ = 1/15 pizza
British Pound - Australian Dollar - New Zealand Dollar - Euro
Oracle
is getting bigger
1USD