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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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. USD-JPY account for ____ of trading FX volume
BS account balances
13%
currency options and forward
1.40 - Because I would be able to buy more euros

2. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
30%
Currency in which the entity reports results externally
three digit ticker symbol ex: USD - United States Dollar
largest - It is open 24 hours a day - except weekends

3. What is the purpose of hedging?
directly or indirectly
less
financial strategy and financial policy
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?
foreign exchange forward contract
financial risk
1 Case = 2 pizzas
Forward contracts and Options

5. Treasury is responsible for banking requirements - funding for the business and managing...
spot price x interest differential
financial risk
Currency of the respective operating unit's country
functional currency

6. A forward happens in...
financial risk
3 business days and beyond
three digit ticker symbol ex: USD - United States Dollar
Currency of the respective operating unit's country

7. What rate is used on the balance sheet?
The difference between hedge rate and final effective hedge rate
P&L activity
End of Period Rate (SCO-4 rate)
allow FX rate

8. The currency ticker for the Sweden Kroner is?
The currency of the primary economic environment in which the legal entity operates
exchange one currency for another
SEK
30%

9. A Spot happens in...
translation
90%
less
two business days

10. Treasury's role is to identify risk - control to prevent erosion of...
21%
financial strength
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
P&L activity

11. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
lost
allow FX rate
interest rate differential
SFAS 52

12. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
BS account balances
foreign exchange forward contract
allow FX rate
Spot price

13. 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?
financial strategy and financial policy
China - Malaysia - Colombia - Chile - Argentina
Spot price
5%

14. What is local currency?

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15. 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...
an estimate of aggregate rate
directly or indirectly
financial risk
is getting bigger

16. How is the hedge rate variance calculated?
Pound strengthens
The difference between hedge rate and final effective hedge rate
Oracle
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

17. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
exchange one currency for another
an estimate of aggregate rate
three digit ticker symbol ex: USD - United States Dollar
What is happening

18. How is the price of the forward contract determined?
SEK
1 Case = 2 pizzas
Current market price - spot - plus or minus the difference between the interest rates of the two countries
B/S rate

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
AUD
13%
lost
fx forward

20. 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
CNY
translation
Pound strengthens
value

21. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
adverse fluctuations
APL rate
exchange one currency for another
less

22. What is currency Translation?

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23. How many currencies use Direct method of quoting?
functional currency
There are FOUR
Oracle
adverse fluctuations

24. Forward points is equal to...
12%
strengthens
largest - It is open 24 hours a day - except weekends
spot price x interest differential

25. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
directly or indirectly
1 Case = 2 pizzas
an estimate of aggregate rate
1.60 - Because you can buy more dollars

26. GBP-USD account for ____ of trading FX volume
liquidity and cash
The currency of the primary economic environment in which the legal entity operates
12%
FX policy

27. How does treasury accomplish its purpose?
downward slope
lost
Mitigates risks by using hedging techniques
exchange rate

28. What is reporting currency?
1USD
foreign currency* rate
is getting bigger
Currency in which the entity reports results externally

29. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
APL rate
30%
FX policy

30. What are monetary accounts?
exchange one currency for another
1 unit
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
China - Malaysia - Colombia - Chile - Argentina

31. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Spot price
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
valuable

32. What are the exceptions to the ticker naming convention?
Effective Hedge rate
MXN - EUR - CHF
foreign exchange forward contract
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

33. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
Pound strengthens
foreign currency* rate
spot price x interest differential

34. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
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
B/S rate
more
End of Period Rate (SCO-4 rate)

35. All other currency trading with USD accounts for ____ of FX volume
Pound strengthens
21%
1 unit
End of Period Rate (SCO-4 rate)

36. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
CNY
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.
less

37. Hedging instrument used in cash flow program is...
15 months in advance - layering on hedges through time
Spot price
CNY
currency options and forward

38. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
21%
End of Period Rate (SCO-4 rate)
foreign currency* rate

39. The offset of revaluation is recorded to...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
F&O account 87503
actual weighted average contract rate
direct

40. 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
SFAS 52
allow FX rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SEK

41. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
value
interest rate differential
translation
direct

42. The timing of when we execute hedges drastically impacts the ____________ we achieve
foreign currency* rate
average rate
SFAS 52
is getting bigger

43. 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
three digit ticker symbol ex: USD - United States Dollar
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
lost

44. Australian currency code is...
AUD
exchange rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Forward contracts and Options

45. An ___________ expresses the value of one currency relative to another
The calculation is the same - but instead of adding forward points you subtract
translation
Pound strengthens
exchange rate

46. Give an example of one way to hedge a price increase in gas prices...
Pound strengthens
6 weeks prior to Q/E
valuable
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

47. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
End of Period Rate (SCO-4 rate)
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
1 Case = 2 pizzas
two business days

48. 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
BRL
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
3 business days and beyond

49. The ticker symbol for the Chinese Yuan
value
APL rate
Forward contracts and Options
CNY

50. The rules for adding or subtracting forward points depend on whether it is quoted...
F&O account 87503
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
allow FX rate
directly or indirectly

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Foreign Exchange Essentials

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