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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
functional currency
1 share = 1/3 case
exchange one currency for another
1.40 - Because I would be able to buy more euros

2. Forward points multiply the exchange rate by the...
interest rate differential
1.40 - Because I would be able to buy more euros
British Pound - Australian Dollar - New Zealand Dollar - Euro
15 months in advance - layering on hedges through time

3. 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
There are FOUR
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
is getting bigger

4. Hedging instrument used in Fair Value Hedge program is...
Spot price
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
fx forward
300 billion

5. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
foreign currency* rate
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
value

6. 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
1.60 - Because you can buy more dollars
3 -210 billion (3 trillion)
is getting bigger

7. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
actual weighted average contract rate
is getting bigger
foreign exchange forward contract
AUD

8. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
allow FX rate
more
two business days
The difference between hedge rate and final effective hedge rate

9. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 unit
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
90%

10. A forward happens in...
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
3 business days and beyond
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Treasury Daily Spot Rate

11. The Foreign Exchange market is the __________ market in the world
weakens
strengthens
directly or indirectly
largest - It is open 24 hours a day - except weekends

12. Australian currency code is...
AUD
Effective Hedge rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
3 business days and beyond

13. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
1USD
Currency of the respective operating unit's country
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

14. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
financial strength
Forward contracts and Options
British Pound - Australian Dollar - New Zealand Dollar - Euro

15. What are the four major FX accounting guidances?
exchange 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
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
CNY
Pound strengthens
1.40 - Because I would be able to buy more euros

17. Direct quote- _____________=USD
an estimate of aggregate rate
5%
1USD
foreign currency* rate

18. What is cash flow used for?
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
3 business days and beyond
CNY
Used to hedge against variability in expected future cash flows

19. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Currency in which the entity reports results externally
an estimate of aggregate rate
End of Period Rate (SCO-4 rate)
90%

20. Revaluation can be hedged - while ___________ cannot be hedged
The currency of the primary economic environment in which the legal entity operates
adverse fluctuations
translation
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

21. What is the trading in volume for FX?
15 months in advance - layering on hedges through time
financial strategy and financial policy
The difference between hedge rate and final effective hedge rate
3 -210 billion (3 trillion)

22. What rate is used on the balance sheet?
1USD
an estimate of aggregate rate
Treasury Daily Spot Rate
End of Period Rate (SCO-4 rate)

23. The currency ticker for the Sweden Kroner is?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Used to hedge against variability in expected future cash flows
Spot price
SEK

24. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Currency in which the entity reports results externally
P&L activity
Mitigates risks by using hedging techniques
Treasury Daily Spot Rate

25. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
actual weighted average contract rate
fx forward
allow FX rate

26. The difference in interest rate is referred to as...
directly or indirectly
Forward Points
three digit ticker symbol ex: USD - United States Dollar
actual weighted average contract rate

27. What is Fair Value hedge program used for?
1 unit
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
21%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

28. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1 Case = 2 pizzas
12%
lost

29. Treasury's role is to identify risk - control to prevent erosion of...
MXN - EUR - CHF
financial strength
15 months in advance - layering on hedges through time
fx forward

30. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
directly or indirectly
is getting bigger
three digit ticker symbol ex: USD - United States Dollar
1.40 - Because I would be able to buy more euros

31. Hedging instrument used in cash flow program is...
currency options and forward
weakens
Oracle
BRL

32. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
BS account balances
B/S rate
foreign currency* rate

33. What is reporting currency?
Currency in which the entity reports results externally
downward slope
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

34. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
strengthens
is getting bigger
FX policy

35. What is local currency?

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36. What is Revaluation?

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37. When is hedge rate published?
6 weeks prior to Q/E
Oracle
interest rate differential
Government regulation and cost of hedging

38. ____________ - foreign currency/rate = USD
AUD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
strengthens
Indirect quote

39. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
interest rate differential
The calculation is the same - but instead of adding forward points you subtract
15 months in advance - layering on hedges through time

40. Treasury is responsible for managing companies funds and determining the firms'...
allow FX rate
financial strategy and financial policy
5%
The difference between hedge rate and final effective hedge rate

41. What is currency Translation?

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42. What is the ticker symbol for Brazilian Real?
BRL
13%
15 months in advance - layering on hedges through time
Spot price

43. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
interest rate differential
financial risk
1 Case = 2 pizzas

44. What dictates minimum and maximum hedge percentages?
FX policy
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
exchange one currency for another
B/S rate

45. Give some examples of countries where its hard to hedge?
13%
Forward Points
China - Malaysia - Colombia - Chile - Argentina
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

46. USD-JPY account for ____ of trading FX volume
Treasury Daily Spot Rate
strengthens
13%
directly or indirectly

47. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
90%
less
End of Period Rate (SCO-4 rate)
direct

48. All other currency trading with USD accounts for ____ of FX volume
90%
21%
fx forward
1 Case = 2 pizzas

49. B/S rate is used for revaluation of foreign currency transaction to...
FX policy
functional currency
Pound strengthens
6 weeks prior to Q/E

50. 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
foreign exchange forward contract
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
allow FX rate
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

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Foreign Exchange Essentials

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