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 is the purpose of hedging?
MXN - EUR - CHF
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
downward slope

2. What is Revaluation?

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3. A Spot happens in...
actual weighted average contract rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
two business days
weakens

4. 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...
more
Indirect quote
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
is getting bigger

5. Australian currency code is...
3 business days and beyond
AUD
value
foreign exchange forward contract

6. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
currency options and forward
Used to hedge against variability in expected future cash flows
an estimate of aggregate rate
two business days

7. What rate is used to book daily transactions?
Treasury Daily Spot Rate
directly or indirectly
5%
FX policy

8. 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?
BS account balances
Mitigates risks by using hedging techniques
B/S rate
5%

9. Treasury ensures that companies have ____________ to meet its obligations
300 billion
exchange rate
liquidity and cash
FX policy

10. How do you read EUR-USD = 1.40
financial risk
financial strength
strengthens
This means 1 Euro measured against US Dollars is worth $1.40

11. ____________ should be denominated in the currency they will either be paid or received in...
direct
The difference between hedge rate and final effective hedge rate
BRL
BS account balances

12. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
translation
currency options and forward
1.60 - Because you can buy more dollars
CNY

13. How many currencies use Direct method of quoting?
3 business days and beyond
1 Case = 2 pizzas
30%
There are FOUR

14. 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
three digit ticker symbol ex: USD - United States Dollar
Pound strengthens
more
financial risk

15. A forward happens in...
two business days
3 business days and beyond
China - Malaysia - Colombia - Chile - Argentina
downward slope

16. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Forward contracts and Options
less
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52

17. Direct quote- _____________=USD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Oracle
allow FX rate
foreign currency* rate

18. The difference in interest rate is referred to as...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
6 weeks prior to Q/E
BS account balances
Forward Points

19. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
less
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1USD
Effective Hedge rate

20. Treasury is responsible for banking requirements - funding for the business and managing...
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
financial risk
13%

21. Forward points is equal to...
foreign exchange forward contract
spot price x interest differential
currency options and forward
weakens

22. The rules for adding or subtracting forward points depend on whether it is quoted...
12%
British Pound - Australian Dollar - New Zealand Dollar - Euro
China - Malaysia - Colombia - Chile - Argentina
directly or indirectly

23. What is local currency?

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24. What is reporting currency?
End of Period Rate (SCO-4 rate)
Currency in which the entity reports results externally
value
1USD

25. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
Spot price
1.40 - Because I would be able to buy more euros
3 -210 billion (3 trillion)

26. ____________ is used for translation of foreign currency P&L to Reporting currency?
less
APL rate
There are FOUR
is getting bigger

27. The ticker symbol for the Chinese Yuan
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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
is getting bigger
CNY

28. Where are revaluations done?
BRL
Oracle
Mitigates risks by using hedging techniques
Effective Hedge rate

29. Give an example of one way to hedge a price increase in gas prices...
downward slope
strengthens
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

30. What is the ticker symbol for Brazilian Real?
BRL
financial strategy and financial policy
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
300 billion

31. US Treasuries is the second highest trading volume accounting for...
value
exchange one currency for another
largest - It is open 24 hours a day - except weekends
300 billion

32. How does treasury accomplish its purpose?
300 billion
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
Mitigates risks by using hedging techniques
21%

33. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
What is happening
The calculation is the same - but instead of adding forward points you subtract

34. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
average rate
1 unit
is getting bigger
30%

35. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
three digit ticker symbol ex: USD - United States Dollar
30%
300 billion
Used to hedge against variability in expected future cash flows

36. What would happen if the US interest rate was bigger than Mexico?
21%
financial strategy and financial policy
The calculation is the same - but instead of adding forward points you subtract
exchange one currency for another

37. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Oracle
21%
adverse fluctuations
3 business days and beyond

38. Give some examples of countries where its hard to hedge?
Oracle
China - Malaysia - Colombia - Chile - Argentina
BRL
an estimate of aggregate rate

39. What are some of the reason not hedge at all or partially hedge in a few countries?
spot price x interest differential
interest rate differential
Government regulation and cost of hedging
Treasury Daily Spot Rate

40. What is the trading in volume for FX?
allow FX rate
Oracle
The currency of the primary economic environment in which the legal entity operates
3 -210 billion (3 trillion)

41. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
CNY
1 share = 1/3 case
SEK

42. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The currency of the primary economic environment in which the legal entity operates
an estimate of aggregate rate
foreign currency* rate

43. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
actual weighted average contract rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
more
Used to hedge against variability in expected future cash flows

44. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
value
F&O account 87503

45. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
F&O account 87503
What is happening
downward slope
1 share = 1/3 case

46. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
What is happening
China - Malaysia - Colombia - Chile - Argentina
foreign currency* rate
allow FX rate

47. What dictates minimum and maximum hedge percentages?
adverse fluctuations
FX policy
China - Malaysia - Colombia - Chile - Argentina
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

48. Treasury's role is to identify risk - control to prevent erosion of...
Mitigates risks by using hedging techniques
AUD
financial strength
12%

49. B/S rate is used for revaluation of foreign currency transaction to...
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
Government regulation and cost of hedging
1 Case = 2 pizzas
functional currency

50. All other currency trading with USD accounts for ____ of FX volume
directly or indirectly
foreign currency* rate
There are FOUR
21%