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 purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Oracle
1USD
Used to hedge against variability in expected future cash flows

2. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
P&L activity
fx forward
lost
British Pound - Australian Dollar - New Zealand Dollar - Euro

3. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
interest rate differential
1 unit
SEK
direct

4. What would happen if the US interest rate was bigger than Mexico?
P&L activity
lost
The calculation is the same - but instead of adding forward points you subtract
5%

5. What dictates minimum and maximum hedge percentages?
FX policy
Oracle
The calculation is the same - but instead of adding forward points you subtract
Effective Hedge rate

6. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
B/S rate
What is happening
two business days

7. Where are revaluations done?
average rate
Forward contracts and Options
Oracle
financial risk

8. What are the four major FX accounting guidances?
actual weighted average contract rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
average rate
This means 1 Euro measured against US Dollars is worth $1.40

9. 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
90%
directly or indirectly
B/S rate
Pound strengthens

10. If 1 pizza = 15 USD then ____ = 1/15 pizza
This means 1 Euro measured against US Dollars is worth $1.40
1USD
financial strength
Currency in which the entity reports results externally

11. What instruments do we use to hedge?
What is happening
1 unit
AUD
Forward contracts and Options

12. The current market price for any currency pair is referred to as ?
Spot price
Current market price - spot - plus or minus the difference between the interest rates of the two countries
90%
downward slope

13. B/S rate is used for revaluation of foreign currency transaction to...
B/S rate
downward slope
functional currency
Currency in which the entity reports results externally

14. 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
Forward Points
1 share = 1/3 case
exchange one currency for another

15. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
SFAS 52
less
1.60 - Because you can buy more dollars

16. What does it mean to hedge?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Oracle
3 business days and beyond
fx forward

17. Hedging instrument used in cash flow program is...
weakens
fx forward
currency options and forward
directly or indirectly

18. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
1.60 - Because you can buy more dollars
SFAS 52
5%

19. The currency ticker for the Sweden Kroner is?
two business days
SEK
directly or indirectly
average rate

20. In general EUR-USD is involved in roughly ___ of all FX volume
exchange one currency for another
Spot price
Currency in which the entity reports results externally
90%

21. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
B/S rate
Oracle
The calculation is the same - but instead of adding forward points you subtract

22. What is the trading in volume for FX?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
3 -210 billion (3 trillion)
Treasury Daily Spot Rate
Forward Points

23. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 business days and beyond
12%
Indirect quote

24. Revaluation can be hedged - while ___________ cannot be hedged
average rate
End of Period Rate (SCO-4 rate)
translation
The currency of the primary economic environment in which the legal entity operates

25. An ___________ expresses the value of one currency relative to another
exchange rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
End of Period Rate (SCO-4 rate)
lost

26. What currencies use Direct method of quoting?
3 business days and beyond
British Pound - Australian Dollar - New Zealand Dollar - Euro
SFAS 52
Oracle

27. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
largest - It is open 24 hours a day - except weekends
CNY
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

28. 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
Currency in which the entity reports results externally
1 share = 1/3 case
two business days

29. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
interest rate differential
average rate
15 months in advance - layering on hedges through time
strengthens

30. ____________ - foreign currency/rate = USD
What is happening
Effective Hedge rate
3 business days and beyond
Indirect quote

31. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Treasury Daily Spot Rate
13%
1 unit
weakens

32. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
F&O account 87503
1 unit
What is happening
15 months in advance - layering on hedges through time

33. How far in advance do we hedge?
China - Malaysia - Colombia - Chile - Argentina
MXN - EUR - CHF
15 months in advance - layering on hedges through time
two business days

34. How many currencies use Direct method of quoting?
1 unit
an estimate of aggregate rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
There are FOUR

35. What rate is used to book daily transactions?
Treasury Daily Spot Rate
Government regulation and cost of hedging
two business days
3 business days and beyond

36. Forward points multiply the exchange rate by the...
P&L activity
End of Period Rate (SCO-4 rate)
interest rate differential
financial risk

37. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
This means 1 Euro measured against US Dollars is worth $1.40
B/S 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

38. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
B/S rate
actual weighted average contract rate
adverse fluctuations
SFAS 52

39. A forward happens in...
There are FOUR
30%
currency options and forward
3 business days and beyond

40. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
lost
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
foreign exchange forward contract
is getting bigger

41. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
MXN - EUR - CHF
SEK
Government regulation and cost of hedging

42. How is the hedge rate variance calculated?
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
APL rate
The difference between hedge rate and final effective hedge rate
MXN - EUR - CHF

43. 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
allow FX rate
12%
Indirect quote
weakens

44. USD-JPY account for ____ of trading FX volume
1USD
1 Case = 2 pizzas
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
13%

45. What is Revaluation?

46. What is reporting currency?
Effective Hedge rate
Currency in which the entity reports results externally
B/S rate
FX policy

47. The ticker symbol for the Chinese Yuan
3 -210 billion (3 trillion)
CNY
15 months in advance - layering on hedges through time
weakens

48. When is hedge rate published?
6 weeks prior to Q/E
FX policy
Government regulation and cost of hedging
Treasury Daily Spot Rate

49. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
APL rate
more
P&L activity

50. Direct quote- _____________=USD
foreign currency* rate
AUD
actual weighted average contract rate
The currency of the primary economic environment in which the legal entity operates