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 GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
End of Period Rate (SCO-4 rate)
What is happening
more
1.40 - Because I would be able to buy more euros

2. The Foreign Exchange market is the __________ market in the world
FX policy
BRL
largest - It is open 24 hours a day - except weekends
Currency of the respective operating unit's country

3. 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
fx forward
direct
Oracle

4. Australian currency code is...
Forward contracts and Options
There are FOUR
Treasury Daily Spot Rate
AUD

5. What are the exceptions to the ticker naming convention?
Effective Hedge rate
actual weighted average contract rate
MXN - EUR - CHF
P&L activity

6. The timing of when we execute hedges drastically impacts the ____________ we achieve
an estimate of aggregate rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Forward contracts and Options
average rate

7. What is cash flow used for?
Used to hedge against variability in expected future cash flows
two business days
weakens
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

8. If 1 pizza = 15 USD then ____ = 1/15 pizza
CNY
15 months in advance - layering on hedges through time
1USD
P&L activity

9. What is the trading in volume for FX?
3 -210 billion (3 trillion)
spot price x interest differential
SEK
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

10. Give an example of one way to hedge a price increase in gas prices...
largest - It is open 24 hours a day - except weekends
downward slope
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
CNY

11. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
average rate
foreign currency* rate
less
Indirect quote

12. How many currencies use Direct method of quoting?
MXN - EUR - CHF
downward slope
an estimate of aggregate rate
There are FOUR

13. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
British Pound - Australian Dollar - New Zealand Dollar - Euro
P&L activity
B/S rate

14. Give some examples of countries where its hard to hedge?
Oracle
strengthens
1 Case = 2 pizzas
China - Malaysia - Colombia - Chile - Argentina

15. What currencies use Direct method of quoting?
1.60 - Because you can buy more dollars
financial strategy and financial policy
British Pound - Australian Dollar - New Zealand Dollar - Euro
SFAS 52

16. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Forward contracts and Options
The calculation is the same - but instead of adding forward points you subtract
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

17. When is hedge rate published?
Spot price
6 weeks prior to Q/E
1 Case = 2 pizzas
FX policy

18. A forward happens in...
3 -210 billion (3 trillion)
Oracle
3 business days and beyond
spot price x interest differential

19. 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...
lost
90%
What is happening
is getting bigger

20. How do you read EUR-USD = 1.40
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
This means 1 Euro measured against US Dollars is worth $1.40
1.60 - Because you can buy more dollars
fx forward

21. B/S rate is used for revaluation of foreign currency transaction to...
CNY
AUD
functional currency
Used to hedge against variability in expected future cash flows

22. The current market price for any currency pair is referred to as ?
Spot price
1USD
1 unit
exchange one currency for another

23. Direct quote- _____________=USD
APL rate
foreign currency* rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
two business days

24. 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
interest rate differential
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
21%

25. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
interest rate differential
exchange rate
1 share = 1/3 case
Current market price - spot - plus or minus the difference between the interest rates of the two countries

26. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
strengthens
direct
functional currency
foreign exchange forward contract

27. USD-JPY account for ____ of trading FX volume
foreign exchange forward contract
The calculation is the same - but instead of adding forward points you subtract
Mitigates risks by using hedging techniques
13%

28. The currency ticker for the Sweden Kroner is?
Forward contracts and Options
adverse fluctuations
15 months in advance - layering on hedges through time
SEK

29. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Government regulation and cost of hedging
3 -210 billion (3 trillion)
F&O account 87503
1 unit

30. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
3 business days and beyond
exchange rate
an estimate of aggregate rate
Government regulation and cost of hedging

31. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
CNY
The difference between hedge rate and final effective hedge rate
Used to hedge against variability in expected future cash flows

32. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
Effective Hedge rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 Case = 2 pizzas
allow FX rate

33. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
two business days
actual weighted average contract rate
Pound strengthens

34. What are the four major FX accounting guidances?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
AUD
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
3 -210 billion (3 trillion)

35. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Effective Hedge rate
valuable
BRL

36. US Treasuries is the second highest trading volume accounting for...
strengthens
MXN - EUR - CHF
300 billion
1USD

37. What is local currency?

38. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
exchange rate
weakens
Spot price
spot price x interest differential

39. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
value
This means 1 Euro measured against US Dollars is worth $1.40
1 unit

40. How is the price of the forward contract determined?
direct
three digit ticker symbol ex: USD - United States Dollar
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Current market price - spot - plus or minus the difference between the interest rates of the two countries

41. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
financial strategy and financial policy
adverse fluctuations
3 -210 billion (3 trillion)

42. Revaluation can be hedged - while ___________ cannot be hedged
SFAS 52
directly or indirectly
translation
lost

43. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Government regulation and cost of hedging
three digit ticker symbol ex: USD - United States Dollar
financial strategy and financial policy

44. The ticker symbol for the Chinese Yuan
less
Indirect quote
12%
CNY

45. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
more
MXN - EUR - CHF

46. 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
Pound strengthens
1.40 - Because I would be able to buy more euros
allow FX rate
End of Period Rate (SCO-4 rate)

47. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
functional currency
three digit ticker symbol ex: USD - United States Dollar
SFAS 52
Pound strengthens

48. A Spot happens in...
exchange rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
two business days
Government regulation and cost of hedging

49. GBP-USD account for ____ of trading FX volume
actual weighted average contract rate
allow FX rate
12%
Forward contracts and Options

50. What rate is used on the balance sheet?
translation
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
MXN - EUR - CHF
End of Period Rate (SCO-4 rate)