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. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
Currency in which the entity reports results externally
is getting bigger
more

2. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
1 share = 1/3 case
13%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

3. USD-JPY account for ____ of trading FX volume
13%
The currency of the primary economic environment in which the legal entity operates
There are FOUR
valuable

4. The rules for adding or subtracting forward points depend on whether it is quoted...
allow FX rate
adverse fluctuations
directly or indirectly
1 Case = 2 pizzas

5. An ___________ expresses the value of one currency relative to another
interest rate differential
exchange rate
Used to hedge against variability in expected future cash flows
The difference between hedge rate and final effective hedge rate

6. A forward happens in...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
3 business days and beyond
1USD
1.40 - Because I would be able to buy more euros

7. Forward points multiply the exchange rate by the...
financial strategy and financial policy
1USD
SEK
interest rate differential

8. 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
Government regulation and cost of hedging
1.60 - Because you can buy more dollars
value

9. Treasury's role is to identify risk - control to prevent erosion of...
SEK
functional currency
financial strength
Treasury Daily Spot Rate

10. What would happen if the US interest rate was bigger than Mexico?
Used to hedge against variability in expected future cash flows
13%
AUD
The calculation is the same - but instead of adding forward points you subtract

11. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
FX policy
BS account balances
3 business days and beyond

12. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
CNY
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Treasury Daily Spot Rate
exchange one currency for another

13. The current market price for any currency pair is referred to as ?
CNY
Spot price
exchange one currency for another
exchange rate

14. What is cash flow used for?
1 share = 1/3 case
Forward contracts and Options
Used to hedge against variability in expected future cash flows
1USD

15. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
There are FOUR
Forward Points
3 business days and beyond
an estimate of aggregate rate

16. What is local currency?

17. A Spot happens in...
1 unit
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
two business days
three digit ticker symbol ex: USD - United States Dollar

18. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Effective Hedge rate
MXN - EUR - CHF
End of Period Rate (SCO-4 rate)

19. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
liquidity and cash
There are FOUR
adverse fluctuations
1 share = 1/3 case

20. What instruments do we use to hedge?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1.40 - Because I would be able to buy more euros
Forward contracts and Options
BS account balances

21. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
financial strength
F&O account 87503
strengthens

22. 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
BRL
15 months in advance - layering on hedges through time
Pound strengthens
The difference between hedge rate and final effective hedge rate

23. GBP-USD account for ____ of trading FX volume
SFAS 52
12%
is getting bigger
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

24. The currency ticker for the Sweden Kroner is?
MXN - EUR - CHF
SEK
1.40 - Because I would be able to buy more euros
CNY

25. All other currency trading with USD accounts for ____ of FX volume
financial strength
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
21%
translation

26. What is currency Translation?

27. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
90%
End of Period Rate (SCO-4 rate)
B/S rate
P&L activity

28. Where are revaluations done?
foreign currency* rate
Oracle
Forward Points
financial risk

29. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
lost
actual weighted average contract rate
1.60 - Because you can buy more dollars
Oracle

30. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
End of Period Rate (SCO-4 rate)
300 billion
There are FOUR
foreign exchange forward contract

31. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
1.60 - Because you can buy more dollars
interest rate differential
300 billion

32. US Treasuries is the second highest trading volume accounting for...
financial strategy and financial policy
300 billion
What is happening
30%

33. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
valuable
3 business days and beyond
currency options and forward

34. Treasury ensures that companies have ____________ to meet its obligations
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
liquidity and cash
more
Pound strengthens

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
Oracle
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
F&O account 87503

36. How does treasury accomplish its purpose?
21%
CNY
directly or indirectly
Mitigates risks by using hedging techniques

37. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
adverse fluctuations
direct
two business days
The currency of the primary economic environment in which the legal entity operates

38. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
B/S rate
weakens
F&O account 87503
30%

39. The offset of revaluation is recorded to...
CNY
financial risk
Government regulation and cost of hedging
F&O account 87503

40. 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
valuable
downward slope
End of Period Rate (SCO-4 rate)
largest - It is open 24 hours a day - except weekends

41. What is the trading in volume for FX?
3 -210 billion (3 trillion)
There are FOUR
Effective Hedge rate
foreign exchange forward contract

42. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
F&O account 87503
is getting bigger
21%

43. What are the four major FX accounting guidances?
The difference between hedge rate and final effective hedge rate
15 months in advance - layering on hedges through time
30%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

44. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
B/S rate
Oracle

45. What rate is used on the P&L?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
directly or indirectly
foreign currency* rate
Pound strengthens

46. When is hedge rate published?
translation
300 billion
SFAS 52
6 weeks prior to Q/E

47. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
downward slope
What is happening
lost
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

48. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
currency options and forward
End of Period Rate (SCO-4 rate)
financial strength
adverse fluctuations

49. 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...
is getting bigger
three digit ticker symbol ex: USD - United States Dollar
foreign currency* rate
liquidity and cash

50. 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?
currency options and forward
three digit ticker symbol ex: USD - United States Dollar
CNY
5%