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. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
functional currency
What is happening
currency options and forward

2. The difference in interest rate is referred to as...
Forward Points
15 months in advance - layering on hedges through time
liquidity and cash
SFAS 52

3. Australian currency code is...
Forward contracts and Options
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
AUD
Currency of the respective operating unit's country

4. What is Functional Currency?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
The currency of the primary economic environment in which the legal entity operates
translation
Spot price

5. What instruments do we use to hedge?
Forward contracts and Options
Spot price
foreign currency* rate
translation

6. 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...
British Pound - Australian Dollar - New Zealand Dollar - Euro
value
is getting bigger
SEK

7. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Currency of the respective operating unit's country
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1 Case = 2 pizzas
P&L activity

8. Forward points is equal to...
adverse fluctuations
British Pound - Australian Dollar - New Zealand Dollar - Euro
spot price x interest differential
financial strength

9. The ticker symbol for the Chinese Yuan
China - Malaysia - Colombia - Chile - Argentina
CNY
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
strengthens

10. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
APL rate
directly or indirectly
direct

11. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
more
financial strength
Used to hedge against variability in expected future cash flows

12. Revaluation can be hedged - while ___________ cannot be hedged
Mitigates risks by using hedging techniques
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
translation

13. An ___________ expresses the value of one currency relative to another
exchange rate
MXN - EUR - CHF
Used to hedge against variability in expected future cash flows
financial strategy and financial policy

14. Treasury is responsible for managing companies funds and determining the firms'...
Treasury Daily Spot Rate
financial strategy and financial policy
Mitigates risks by using hedging techniques
Pound strengthens

15. What is cash flow used for?
three digit ticker symbol ex: USD - United States Dollar
Used to hedge against variability in expected future cash flows
exchange one currency for another
lost

16. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
less
largest - It is open 24 hours a day - except weekends
Spot price

17. The currency ticker for the Sweden Kroner is?
largest - It is open 24 hours a day - except weekends
currency options and forward
adverse fluctuations
SEK

18. What are some of the reason not hedge at all or partially hedge in a few countries?
MXN - EUR - CHF
Government regulation and cost of hedging
SEK
BS account balances

19. Where are revaluations done?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
direct
Oracle
Treasury Daily Spot Rate

20. A forward happens in...
lost
adverse fluctuations
3 business days and beyond
translation

21. GBP-USD account for ____ of trading FX volume
12%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
exchange rate
allow FX rate

22. What is the trading in volume for FX?
Currency of the respective operating unit's country
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Currency in which the entity reports results externally
3 -210 billion (3 trillion)

23. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Oracle
Forward contracts and Options
BRL
lost

24. Treasury's role is to identify risk - control to prevent erosion of...
fx forward
financial strength
BS account balances
12%

25. 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
Currency of the respective operating unit's country
Pound strengthens
What is happening
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

26. Direct quote- _____________=USD
direct
1 Case = 2 pizzas
Government regulation and cost of hedging
foreign currency* rate

27. 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
1USD
foreign exchange forward contract
Pound strengthens

28. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
British Pound - Australian Dollar - New Zealand Dollar - Euro
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
directly or indirectly
exchange one currency for another

29. What is local currency?

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30. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
This means 1 Euro measured against US Dollars is worth $1.40
1 share = 1/3 case
13%
actual weighted average contract rate

31. How many currencies use Direct method of quoting?
financial strategy and financial policy
two business days
AUD
There are FOUR

32. What rate is used on the balance sheet?
adverse fluctuations
There are FOUR
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
End of Period Rate (SCO-4 rate)

33. What are monetary accounts?
300 billion
AUD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
value

34. What is currency Translation?

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35. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
direct
valuable
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

36. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1 share = 1/3 case
Currency of the respective operating unit's country

37. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Oracle
adverse fluctuations
lost
less

38. The rules for adding or subtracting forward points depend on whether it is quoted...
valuable
13%
directly or indirectly
three digit ticker symbol ex: USD - United States Dollar

39. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Pound strengthens
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
adverse fluctuations
Oracle

40. All other currency trading with USD accounts for ____ of FX volume
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
21%
functional currency
300 billion

41. A Spot happens in...
13%
1.60 - Because you can buy more dollars
two business days
1USD

42. How do you read EUR-USD = 1.40
Forward Points
interest rate differential
This means 1 Euro measured against US Dollars is worth $1.40
lost

43. Give an example of one way to hedge a price increase in gas prices...
spot price x interest differential
Effective Hedge rate
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

44. What are non-monetary accounts?
1 share = 1/3 case
BRL
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Indirect quote

45. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
BRL
12%
Currency in which the entity reports results externally

46. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
Forward contracts and Options
Government regulation and cost of hedging
financial risk

47. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
There are FOUR
What is happening
liquidity and cash
300 billion

48. The Foreign Exchange market is the __________ market in the world
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
largest - It is open 24 hours a day - except weekends
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
less

49. 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
directly or indirectly
British Pound - Australian Dollar - New Zealand Dollar - Euro
The currency of the primary economic environment in which the legal entity operates

50. Give some examples of countries where its hard to hedge?
The calculation is the same - but instead of adding forward points you subtract
foreign exchange forward contract
1USD
China - Malaysia - Colombia - Chile - Argentina