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 ticker symbol for Brazilian Real?
interest rate differential
BRL
6 weeks prior to Q/E
13%

2. A Spot happens in...
two business days
Currency of the respective operating unit's country
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
Spot price

3. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
BRL
an estimate of aggregate rate
Pound strengthens
foreign exchange forward contract

4. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
less
three digit ticker symbol ex: USD - United States Dollar
There are FOUR

5. B/S rate is used for revaluation of foreign currency transaction to...
1 share = 1/3 case
F&O account 87503
Treasury Daily Spot Rate
functional currency

6. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
BRL
30%
There are FOUR

7. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
B/S rate
allow FX rate
exchange rate

8. What instruments do we use to hedge?
BS account balances
Forward contracts and Options
300 billion
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

9. Where are revaluations done?
The currency of the primary economic environment in which the legal entity operates
What is happening
MXN - EUR - CHF
Oracle

10. What is currency Translation?

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11. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
two business days
The difference between hedge rate and final effective hedge rate
1 share = 1/3 case

12. In general EUR-USD is involved in roughly ___ of all FX volume
largest - It is open 24 hours a day - except weekends
90%
P&L activity
3 -210 billion (3 trillion)

13. GBP-USD account for ____ of trading FX volume
P&L activity
spot price x interest differential
12%
lost

14. The offset of revaluation is recorded to...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
3 business days and beyond
F&O account 87503
SFAS 52

15. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
3 -210 billion (3 trillion)
Oracle
1 share = 1/3 case
interest rate differential

16. Treasury ensures that companies have ____________ to meet its obligations
1USD
There are FOUR
valuable
liquidity and cash

17. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
China - Malaysia - Colombia - Chile - Argentina
End of Period Rate (SCO-4 rate)
MXN - EUR - CHF

18. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
BRL
21%
Oracle

19. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
1 Case = 2 pizzas
lost
directly or indirectly
What is happening

20. What rate is used on the balance sheet?
1USD
This means 1 Euro measured against US Dollars is worth $1.40
End of Period Rate (SCO-4 rate)
The currency of the primary economic environment in which the legal entity operates

21. What are some of the reason not hedge at all or partially hedge in a few countries?
300 billion
Government regulation and cost of hedging
spot price x interest differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

22. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
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
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

23. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
13%
financial strength
British Pound - Australian Dollar - New Zealand Dollar - Euro
foreign exchange forward contract

24. The currency ticker for the Sweden Kroner is?
directly or indirectly
currency options and forward
SEK
AUD

25. 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
21%
MXN - EUR - CHF
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
allow FX rate

26. Forward points is equal to...
P&L activity
MXN - EUR - CHF
spot price x interest differential
weakens

27. Hedging instrument used in cash flow program is...
Indirect quote
largest - It is open 24 hours a day - except weekends
spot price x interest differential
currency options and forward

28. What is Revaluation?

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29. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
The currency of the primary economic environment in which the legal entity operates
This means 1 Euro measured against US Dollars is worth $1.40

30. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
foreign exchange forward contract
MXN - EUR - CHF
APL rate

31. When is hedge rate published?
6 weeks prior to Q/E
1 unit
1USD
directly or indirectly

32. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
fx forward
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
allow FX rate

33. What is the trading in volume for FX?
exchange rate
3 -210 billion (3 trillion)
Treasury Daily Spot Rate
exchange one currency for another

34. Australian currency code is...
AUD
Used to hedge against variability in expected future cash flows
30%
currency options and forward

35. What rate is used to book daily transactions?
Treasury Daily Spot Rate
lost
allow FX rate
P&L activity

36. The timing of when we execute hedges drastically impacts the ____________ we achieve
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
an estimate of aggregate rate
average rate
Forward contracts and Options

37. The ticker symbol for the Chinese Yuan
Currency of the respective operating unit's country
CNY
1 Case = 2 pizzas
The currency of the primary economic environment in which the legal entity operates

38. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
direct
21%
exchange rate

39. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Used to hedge against variability in expected future cash flows
Forward contracts and Options
foreign currency* rate

40. The rules for adding or subtracting forward points depend on whether it is quoted...
fx forward
weakens
directly or indirectly
financial strategy and financial policy

41. 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?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1.40 - Because I would be able to buy more euros
There are FOUR
1.60 - Because you can buy more dollars

42. Treasury is responsible for managing companies funds and determining the firms'...
APL rate
There are FOUR
interest rate differential
financial strategy and financial policy

43. Revaluation can be hedged - while ___________ cannot be hedged
translation
Forward Points
90%
1USD

44. EUR-USD currency pair accounts for about ____ of all FX volume
foreign exchange forward contract
30%
15 months in advance - layering on hedges through time
BRL

45. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
End of Period Rate (SCO-4 rate)
exchange one currency for another
translation
12%

46. An ___________ expresses the value of one currency relative to another
exchange rate
Forward contracts and Options
three digit ticker symbol ex: USD - United States Dollar
Mitigates risks by using hedging techniques

47. What are monetary accounts?
The currency of the primary economic environment in which the legal entity operates
The calculation is the same - but instead of adding forward points you subtract
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

48. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
largest - It is open 24 hours a day - except weekends
valuable
actual weighted average contract rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

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...
value
lost
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
is getting bigger

50. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
financial strength
weakens
1.60 - Because you can buy more dollars
liquidity and cash