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 general EUR-USD is involved in roughly ___ of all FX volume
direct
90%
5%
adverse fluctuations

2. US Treasuries is the second highest trading volume accounting for...
downward slope
strengthens
300 billion
liquidity and cash

3. How is the hedge rate variance calculated?
Used to hedge against variability in expected future cash flows
15 months in advance - layering on hedges through time
The difference between hedge rate and final effective hedge rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

4. What instruments do we use to hedge?
APL rate
weakens
Forward contracts and Options
China - Malaysia - Colombia - Chile - Argentina

5. Give some examples of countries where its hard to hedge?
translation
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
downward slope
China - Malaysia - Colombia - Chile - Argentina

6. What is Fair Value hedge program used for?
AUD
lost
13%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

7. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SFAS 52
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
spot price x interest differential

8. What is local currency?

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9. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
1USD
valuable
Treasury Daily Spot Rate

10. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
MXN - EUR - CHF
weakens
What is happening

11. The currency ticker for the Sweden Kroner is?
Forward Points
financial risk
1 unit
SEK

12. 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...
directly or indirectly
interest rate differential
is getting bigger
3 -210 billion (3 trillion)

13. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
3 -210 billion (3 trillion)
F&O account 87503
exchange rate

14. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
an estimate of aggregate rate
The currency of the primary economic environment in which the legal entity operates
5%

15. Treasury's role is to identify risk - control to prevent erosion of...
currency options and forward
Spot price
BS account balances
financial strength

16. What is Revaluation?

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17. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
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
Used to hedge against variability in expected future cash flows
15 months in advance - layering on hedges through time

18. 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
Government regulation and cost of hedging
P&L activity
3 -210 billion (3 trillion)

19. A Spot happens in...
15 months in advance - layering on hedges through time
two business days
an estimate of aggregate rate
actual weighted average contract rate

20. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Forward contracts and Options
12%
What is happening

21. A forward happens in...
financial strategy and financial policy
5%
3 business days and beyond
1 Case = 2 pizzas

22. 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
BRL
more
downward slope
APL rate

23. Direct quote- _____________=USD
B/S rate
6 weeks prior to Q/E
foreign currency* rate
This means 1 Euro measured against US Dollars is worth $1.40

24. Treasury is responsible for banking requirements - funding for the business and managing...
Forward Points
financial risk
The difference between hedge rate and final effective hedge rate
BS account balances

25. Hedging instrument used in cash flow program is...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
two business days
End of Period Rate (SCO-4 rate)
currency options and forward

26. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
1 unit
British Pound - Australian Dollar - New Zealand Dollar - Euro
MXN - EUR - CHF

27. The Foreign Exchange market is the __________ market in the world
What is happening
Used to hedge against variability in expected future cash flows
adverse fluctuations
largest - It is open 24 hours a day - except weekends

28. What are monetary accounts?
strengthens
Currency of the respective operating unit's country
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1 unit

29. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
F&O account 87503
13%
Effective Hedge rate
1 unit

30. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Used to hedge against variability in expected future cash flows
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
What is happening

31. 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
Pound strengthens
largest - It is open 24 hours a day - except weekends
13%
Government regulation and cost of hedging

32. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
1 unit
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
End of Period Rate (SCO-4 rate)

33. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
actual weighted average contract rate
21%
less
13%

34. What is the ticker symbol for Brazilian Real?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
BRL
Currency in which the entity reports results externally

35. Forward points multiply the exchange rate by the...
Currency in which the entity reports results externally
30%
interest rate differential
direct

36. 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?
Spot price
5%
Effective Hedge rate
directly or indirectly

37. The rules for adding or subtracting forward points depend on whether it is quoted...
functional currency
allow FX rate
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

38. How does treasury accomplish its purpose?
The calculation is the same - but instead of adding forward points you subtract
BS account balances
lost
Mitigates risks by using hedging techniques

39. What rate is used to book daily transactions?
average rate
Treasury Daily Spot Rate
downward slope
AUD

40. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
Currency in which the entity reports results externally
actual weighted average contract rate
foreign currency* rate
1 share = 1/3 case

41. What rate is used on the P&L?
Pound strengthens
Current market price - spot - plus or minus the difference between the interest rates of the two countries
5%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

42. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
What is happening
is getting bigger
three digit ticker symbol ex: USD - United States Dollar
Oracle

43. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
currency options and forward
SFAS 52
1.60 - Because you can buy more dollars
1 Case = 2 pizzas

44. B/S rate is used for revaluation of foreign currency transaction to...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
exchange rate
functional currency
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

45. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
Treasury Daily Spot Rate
3 business days and beyond
financial strength

46. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
three digit ticker symbol ex: USD - United States Dollar
SFAS 52
downward slope
Spot price

47. How is the price of the forward contract determined?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
downward slope
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Current market price - spot - plus or minus the difference between the interest rates of the two countries

48. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
12%
adverse fluctuations
lost
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

49. An ___________ expresses the value of one currency relative to another
exchange one currency for another
There are FOUR
exchange rate
foreign currency* rate

50. GBP-USD account for ____ of trading FX volume
12%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
fx forward
The currency of the primary economic environment in which the legal entity operates