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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. The offset of revaluation is recorded to...
F&O account 87503
two business days
foreign currency* rate
downward slope

2. Treasury is responsible for banking requirements - funding for the business and managing...
average rate
less
financial risk
21%

3. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
an estimate of aggregate rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Government regulation and cost of hedging
value

4. 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
value
strengthens
financial strategy and financial policy

5. What is reporting currency?
BRL
12%
Currency in which the entity reports results externally
interest rate differential

6. The rules for adding or subtracting forward points depend on whether it is quoted...
is getting bigger
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
directly or indirectly
Forward Points

7. How many currencies use Direct method of quoting?
15 months in advance - layering on hedges through time
300 billion
Currency of the respective operating unit's country
There are FOUR

8. Give some examples of countries where its hard to hedge?
Spot price
currency options and forward
China - Malaysia - Colombia - Chile - Argentina
The calculation is the same - but instead of adding forward points you subtract

9. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
valuable
Treasury Daily Spot Rate
foreign exchange forward contract
financial strategy and financial policy

10. What are the four major FX accounting guidances?
1.60 - Because you can buy more dollars
SEK
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
functional currency

11. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
BRL
three digit ticker symbol ex: USD - United States Dollar
This means 1 Euro measured against US Dollars is worth $1.40
foreign exchange forward contract

12. The ticker symbol for the Chinese Yuan
1 Case = 2 pizzas
CNY
fx forward
Currency in which the entity reports results externally

13. US Treasuries is the second highest trading volume accounting for...
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
financial strategy and financial policy
300 billion
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

14. ____________ - foreign currency/rate = USD
Indirect quote
BS account balances
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
5%

15. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
two business days
90%
Effective Hedge rate

16. __________ is used for translation of foreign currency B/S to reporting currency
12%
currency options and forward
B/S rate
1.60 - Because you can buy more dollars

17. B/S rate is used for revaluation of foreign currency transaction to...
B/S rate
30%
functional currency
adverse fluctuations

18. 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
financial strength
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
downward slope
valuable

19. What is the trading in volume for FX?
largest - It is open 24 hours a day - except weekends
an estimate of aggregate rate
Oracle
3 -210 billion (3 trillion)

20. What are the exceptions to the ticker naming convention?
BS account balances
90%
MXN - EUR - CHF
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

21. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
15 months in advance - layering on hedges through time
largest - It is open 24 hours a day - except weekends
financial strategy and financial policy
1 Case = 2 pizzas

22. What is currency Translation?

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23. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
1 Case = 2 pizzas
Indirect quote
1.60 - Because you can buy more dollars

24. What are some of the reason not hedge at all or partially hedge in a few countries?
direct
lost
Government regulation and cost of hedging
largest - It is open 24 hours a day - except weekends

25. A forward happens in...
currency options and forward
3 business days and beyond
CNY
weakens

26. Hedging instrument used in cash flow program is...
average rate
currency options and forward
1 unit
directly or indirectly

27. When is hedge rate published?
6 weeks prior to Q/E
Spot price
financial strength
foreign exchange forward contract

28. In general EUR-USD is involved in roughly ___ of all FX volume
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
12%
exchange rate
90%

29. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
direct
three digit ticker symbol ex: USD - United States Dollar
SFAS 52
FX policy

30. Forward points is equal to...
1 share = 1/3 case
The difference between hedge rate and final effective hedge rate
functional currency
spot price x interest differential

31. Revaluation can be hedged - while ___________ cannot be hedged
Pound strengthens
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Government regulation and cost of hedging
translation

32. Treasury's role is to identify risk - control to prevent erosion of...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
The currency of the primary economic environment in which the legal entity operates
financial strength
21%

33. Where are revaluations done?
foreign exchange forward contract
F&O account 87503
Oracle
AUD

34. The Foreign Exchange market is the __________ market in the world
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
largest - It is open 24 hours a day - except weekends
SFAS 52
three digit ticker symbol ex: USD - United States Dollar

35. Forward points multiply the exchange rate by the...
15 months in advance - layering on hedges through time
1.60 - Because you can buy more dollars
interest rate differential
13%

36. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
actual weighted average contract rate
CNY

37. How is the hedge rate variance calculated?
exchange one currency for another
weakens
There are FOUR
The difference between hedge rate and final effective hedge rate

38. ____________ is used for translation of foreign currency P&L to Reporting currency?
functional currency
more
Government regulation and cost of hedging
APL rate

39. What is Revaluation?

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40. How far in advance do we hedge?
15 months in advance - layering on hedges through time
FX policy
APL rate
1 Case = 2 pizzas

41. Hedging instrument used in Fair Value Hedge program is...
MXN - EUR - CHF
fx forward
Used to hedge against variability in expected future cash flows
6 weeks prior to Q/E

42. What is the purpose of hedging?
3 -210 billion (3 trillion)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
adverse fluctuations
1.40 - Because I would be able to buy more euros

43. The timing of when we execute hedges drastically impacts the ____________ we achieve
3 -210 billion (3 trillion)
average rate
Pound strengthens
BS account balances

44. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Indirect quote
weakens
BRL
more

45. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
This means 1 Euro measured against US Dollars is worth $1.40
The currency of the primary economic environment in which the legal entity operates
allow FX rate

46. How is the price of the forward contract determined?
strengthens
foreign currency* rate
largest - It is open 24 hours a day - except weekends
Current market price - spot - plus or minus the difference between the interest rates of the two countries

47. How does treasury accomplish its purpose?
1 share = 1/3 case
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
Mitigates risks by using hedging techniques

48. What would happen if the US interest rate was bigger than Mexico?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Mitigates risks by using hedging techniques
fx forward
The calculation is the same - but instead of adding forward points you subtract

49. 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?
5%
foreign exchange forward contract
Effective Hedge rate
The currency of the primary economic environment in which the legal entity operates

50. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
allow FX rate
P&L activity
Effective Hedge rate
Spot price