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 instruments do we use to hedge?
Government regulation and cost of hedging
Forward contracts and Options
financial risk
directly or indirectly

2. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
There are FOUR
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
AUD
What is happening

3. How does treasury accomplish its purpose?
foreign currency* rate
translation
average rate
Mitigates risks by using hedging techniques

4. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
currency options and forward
1USD
13%

5. The currency ticker for the Sweden Kroner is?
SEK
90%
adverse fluctuations
value

6. Treasury is responsible for managing companies funds and determining the firms'...
12%
adverse fluctuations
21%
financial strategy and financial policy

7. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
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)
APL rate
1 Case = 2 pizzas

8. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
less
Forward Points
strengthens

9. How far in advance do we hedge?
300 billion
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
exchange rate
15 months in advance - layering on hedges through time

10. Forward points is equal to...
Effective Hedge rate
spot price x interest differential
Pound strengthens
valuable

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

12. USD-JPY account for ____ of trading FX volume
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1 unit
less
13%

13. How do you read EUR-USD = 1.40
15 months in advance - layering on hedges through time
SEK
13%
This means 1 Euro measured against US Dollars is worth $1.40

14. What are monetary accounts?
13%
30%
BRL
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

15. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
direct
SFAS 52
downward slope
1 unit

16. The rules for adding or subtracting forward points depend on whether it is quoted...
The currency of the primary economic environment in which the legal entity operates
largest - It is open 24 hours a day - except weekends
MXN - EUR - CHF
directly or indirectly

17. What is the ticker symbol for Brazilian Real?
allow FX rate
BRL
directly or indirectly
spot price x interest differential

18. What rate is used on the balance sheet?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
End of Period Rate (SCO-4 rate)
fx forward
lost

19. ____________ - foreign currency/rate = USD
300 billion
F&O account 87503
Treasury Daily Spot Rate
Indirect quote

20. Hedging instrument used in Fair Value Hedge program is...
6 weeks prior to Q/E
1.60 - Because you can buy more dollars
fx forward
BRL

21. What rate is used to book daily transactions?
BRL
Treasury Daily Spot Rate
financial strength
largest - It is open 24 hours a day - except weekends

22. The ticker symbol for the Chinese Yuan
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
CNY
allow FX rate
three digit ticker symbol ex: USD - United States Dollar

23. What is reporting currency?
Currency in which the entity reports results externally
interest rate differential
two business days
1.40 - Because I would be able to buy more euros

24. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
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
There are FOUR

25. The current market price for any currency pair is referred to as ?
Spot price
adverse fluctuations
British Pound - Australian Dollar - New Zealand Dollar - Euro
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

26. 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?
APL rate
MXN - EUR - CHF
1.40 - Because I would be able to buy more euros
5%

27. In general EUR-USD is involved in roughly ___ of all FX volume
Currency in which the entity reports results externally
90%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
financial risk

28. What is the purpose of hedging?
21%
Government regulation and cost of hedging
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Currency of the respective operating unit's country

29. Australian currency code is...
The difference between hedge rate and final effective hedge rate
The calculation is the same - but instead of adding forward points you subtract
AUD
Oracle

30. How many currencies use Direct method of quoting?
financial risk
financial strategy and financial policy
Pound strengthens
There are FOUR

31. The Foreign Exchange market is the __________ market in the world
The currency of the primary economic environment in which the legal entity operates
largest - It is open 24 hours a day - except weekends
21%
15 months in advance - layering on hedges through time

32. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
foreign currency* rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
adverse fluctuations

33. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
1 unit
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
This means 1 Euro measured against US Dollars is worth $1.40

34. The difference in interest rate is referred to as...
Forward Points
adverse fluctuations
There are FOUR
1.60 - Because you can buy more dollars

35. 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
liquidity and cash
an estimate of aggregate rate
APL rate

36. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
SFAS 52
Effective Hedge rate
Spot price
an estimate of aggregate rate

37. Forward points multiply the exchange rate by the...
6 weeks prior to Q/E
F&O account 87503
Forward contracts and Options
interest rate differential

38. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
lost
interest rate differential
B/S rate

39. Treasury is responsible for banking requirements - funding for the business and managing...
financial strength
21%
1 Case = 2 pizzas
financial risk

40. What are some of the reason not hedge at all or partially hedge in a few countries?
lost
APL rate
Government regulation and cost of hedging
30%

41. What is cash flow used for?
Pound strengthens
foreign exchange forward contract
spot price x interest differential
Used to hedge against variability in expected future cash flows

42. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
spot price x interest differential
strengthens
FX policy

43. Hedging instrument used in cash flow program is...
foreign exchange forward contract
currency options and forward
largest - It is open 24 hours a day - except weekends
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

44. Direct quote- _____________=USD
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
foreign currency* rate
translation
Indirect quote

45. Give some examples of countries where its hard to hedge?
30%
Used to hedge against variability in expected future cash flows
Forward contracts and Options
China - Malaysia - Colombia - Chile - Argentina

46. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
The currency of the primary economic environment in which the legal entity operates
Forward contracts and Options
1 share = 1/3 case
adverse fluctuations

47. When is hedge rate published?
two business days
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
liquidity and cash
6 weeks prior to Q/E

48. What is local currency?

49. What is currency Translation?

50. The timing of when we execute hedges drastically impacts the ____________ we achieve
30%
weakens
average rate
three digit ticker symbol ex: USD - United States Dollar