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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. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Current market price - spot - plus or minus the difference between the interest rates of the two countries
The currency of the primary economic environment in which the legal entity operates
three digit ticker symbol ex: USD - United States Dollar
British Pound - Australian Dollar - New Zealand Dollar - Euro

2. What is local currency?

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3. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
6 weeks prior to Q/E
British Pound - Australian Dollar - New Zealand Dollar - Euro
value

4. How far in advance do we hedge?
less
functional currency
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
15 months in advance - layering on hedges through time

5. What is the ticker symbol for Brazilian Real?
foreign currency* rate
directly or indirectly
BRL
Treasury Daily Spot Rate

6. Treasury ensures that companies have ____________ to meet its obligations
value
Used to hedge against variability in expected future cash flows
financial strategy and financial policy
liquidity and cash

7. USD-JPY account for ____ of trading FX volume
1.40 - Because I would be able to buy more euros
13%
China - Malaysia - Colombia - Chile - Argentina
1USD

8. The Foreign Exchange market is the __________ market in the world
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SEK
largest - It is open 24 hours a day - except weekends
The difference between hedge rate and final effective hedge rate

9. What are the four major FX accounting guidances?
What is happening
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial risk

10. Australian currency code is...
foreign currency* rate
average rate
13%
AUD

11. Revaluation can be hedged - while ___________ cannot be hedged
directly or indirectly
financial strategy and financial policy
translation
There are FOUR

12. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
300 billion
direct
average rate
P&L activity

13. What is Fair Value hedge program used for?
Forward contracts and Options
3 -210 billion (3 trillion)
30%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

14. A Spot happens in...
exchange one currency for another
two business days
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

15. What are monetary accounts?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
British Pound - Australian Dollar - New Zealand Dollar - Euro
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

16. 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...
direct
is getting bigger
value
1 Case = 2 pizzas

17. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Currency of the respective operating unit's country
more
Effective Hedge rate
CNY

18. The ticker symbol for the Chinese Yuan
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
financial risk
average rate
CNY

19. B/S rate is used for revaluation of foreign currency transaction to...
BRL
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
functional currency
Mitigates risks by using hedging techniques

20. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
3 business days and beyond
British Pound - Australian Dollar - New Zealand Dollar - Euro
currency options and forward

21. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
What is happening
allow FX rate
SFAS 52
exchange rate

22. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
adverse fluctuations
an estimate of aggregate rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
15 months in advance - layering on hedges through time

23. 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
directly or indirectly
downward slope
strengthens
30%

24. 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
1 unit
Mitigates risks by using hedging techniques
foreign currency* rate
Pound strengthens

25. The offset of revaluation is recorded to...
F&O account 87503
CNY
1 share = 1/3 case
End of Period Rate (SCO-4 rate)

26. Forward points is equal to...
spot price x interest differential
functional currency
directly or indirectly
Current market price - spot - plus or minus the difference between the interest rates of the two countries

27. 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
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
allow FX rate
Oracle
SFAS 52

28. What is Revaluation?

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29. ____________ is used for translation of foreign currency P&L to Reporting currency?
less
CNY
actual weighted average contract rate
APL rate

30. What would happen if the US interest rate was bigger than Mexico?
value
Government regulation and cost of hedging
exchange one currency for another
The calculation is the same - but instead of adding forward points you subtract

31. All other currency trading with USD accounts for ____ of FX volume
3 -210 billion (3 trillion)
Currency in which the entity reports results externally
F&O account 87503
21%

32. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Currency in which the entity reports results externally
1.60 - Because you can buy more dollars
adverse fluctuations
foreign exchange forward contract

33. Hedging instrument used in cash flow program is...
currency options and forward
two business days
3 business days and beyond
1 unit

34. The current market price for any currency pair is referred to as ?
Indirect quote
functional currency
Spot price
300 billion

35. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
1 unit
financial strength
is getting bigger
What is happening

36. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
financial risk
3 -210 billion (3 trillion)
SFAS 52

37. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Forward contracts and Options
valuable
Oracle
less

38. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
financial strategy and financial policy
is getting bigger
1 share = 1/3 case

39. 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?
average rate
Mitigates risks by using hedging techniques
foreign currency* rate
5%

40. What are some of the reason not hedge at all or partially hedge in a few countries?
AUD
Spot price
Government regulation and cost of hedging
Oracle

41. What is the trading in volume for FX?
F&O account 87503
This means 1 Euro measured against US Dollars is worth $1.40
3 -210 billion (3 trillion)
actual weighted average contract rate

42. 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?
functional currency
1USD
1.40 - Because I would be able to buy more euros
allow FX rate

43. What rate is used on the balance sheet?
more
1 Case = 2 pizzas
End of Period Rate (SCO-4 rate)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

44. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Currency in which the entity reports results externally
90%
Effective Hedge rate
5%

45. Give an example of one way to hedge a price increase in gas prices...
actual weighted average contract rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
China - Malaysia - Colombia - Chile - Argentina
SFAS 52

46. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
lost
Spot price
1 unit
300 billion

47. Direct quote- _____________=USD
3 -210 billion (3 trillion)
B/S rate
foreign currency* rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

48. Where are revaluations done?
Oracle
The difference between hedge rate and final effective hedge rate
fx forward
weakens

49. Hedging instrument used in Fair Value Hedge program is...
value
1 unit
The calculation is the same - but instead of adding forward points you subtract
fx forward

50. What rate is used to book daily transactions?
exchange one currency for another
foreign exchange forward contract
Treasury Daily Spot Rate
Forward contracts and Options

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Foreign Exchange Essentials

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