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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. Give an example of one way to hedge a price increase in gas prices...
F&O account 87503
fx forward
5%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

2. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
Currency of the respective operating unit's country
1 share = 1/3 case
is getting bigger
There are FOUR

3. How is the hedge rate variance calculated?
The currency of the primary economic environment in which the legal entity operates
an estimate of aggregate rate
The difference between hedge rate and final effective hedge rate
exchange one currency for another

4. A Spot happens in...
interest rate differential
lost
two business days
financial strength

5. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
13%
Currency of the respective operating unit's country
The currency of the primary economic environment in which the legal entity operates

6. Hedging instrument used in Fair Value Hedge program is...
strengthens
APL rate
Mitigates risks by using hedging techniques
fx forward

7. What is the purpose of hedging?
CNY
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SFAS 52

8. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
average rate
actual weighted average contract 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

9. What are the exceptions to the ticker naming convention?
currency options and forward
MXN - EUR - CHF
downward slope
is getting bigger

10. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
BRL
What is happening
an estimate of aggregate rate

11. Direct quote- _____________=USD
The difference between hedge rate and final effective hedge rate
APL rate
translation
foreign currency* rate

12. Treasury's role is to identify risk - control to prevent erosion of...
financial risk
financial strength
foreign currency* rate
Currency in which the entity reports results externally

13. US Treasuries is the second highest trading volume accounting for...
currency options and forward
adverse fluctuations
The difference between hedge rate and final effective hedge rate
300 billion

14. What is currency Translation?

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15. All other currency trading with USD accounts for ____ of FX volume
two business days
13%
liquidity and cash
21%

16. When is hedge rate published?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
6 weeks prior to Q/E
B/S rate
1.60 - Because you can buy more dollars

17. Treasury is responsible for banking requirements - funding for the business and managing...
Pound strengthens
BRL
SFAS 52
financial risk

18. GBP-USD account for ____ of trading FX volume
liquidity and cash
1.60 - Because you can buy more dollars
12%
P&L activity

19. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
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
two business days
Effective Hedge rate

20. What is Revaluation?

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21. USD-JPY account for ____ of trading FX volume
1USD
BRL
13%
300 billion

22. What are monetary accounts?
exchange one currency for another
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
valuable

23. EUR-USD currency pair accounts for about ____ of all FX volume
an estimate of aggregate 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
30%
1.40 - Because I would be able to buy more euros

24. 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
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
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
actual weighted average contract rate
Pound strengthens

25. The Foreign Exchange market is the __________ market in the world
spot price x interest differential
largest - It is open 24 hours a day - except weekends
B/S rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

26. 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
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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
downward slope
Mitigates risks by using hedging techniques

27. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Government regulation and cost of hedging
three digit ticker symbol ex: USD - United States Dollar
1 share = 1/3 case
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

28. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
fx forward
Currency in which the entity reports results externally
Current market price - spot - plus or minus the difference between the interest rates of the two countries

29. The ticker symbol for the Chinese Yuan
foreign currency* rate
1 share = 1/3 case
value
CNY

30. What is the ticker symbol for Brazilian Real?
Government regulation and cost of hedging
an estimate of aggregate rate
BRL
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

31. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
interest rate differential
Government regulation and cost of hedging
exchange one currency for another

32. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
Treasury Daily Spot Rate
financial strategy and financial policy
1.60 - Because you can buy more dollars
Currency in which the entity reports results externally

33. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
interest rate differential
Treasury Daily Spot Rate
Government regulation and cost of hedging
lost

34. Forward points is equal to...
financial risk
MXN - EUR - CHF
Oracle
spot price x interest differential

35. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
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
less
weakens
Indirect quote

36. What would happen if the US interest rate was bigger than Mexico?
This means 1 Euro measured against US Dollars is worth $1.40
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
The calculation is the same - but instead of adding forward points you subtract
less

37. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
15 months in advance - layering on hedges through time
foreign exchange forward contract
valuable
21%

38. 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.
5%
fx forward
MXN - EUR - CHF

39. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Government regulation and cost of hedging
foreign exchange forward contract
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
allow FX rate

40. 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 the change in fair value (revaluation) of monetary assets & liabilities
What is happening
translation
There are FOUR

41. Treasury is responsible for managing companies funds and determining the firms'...
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
SFAS 52
financial strategy and financial policy
APL rate

42. What currencies use Direct method of quoting?
lost
an estimate of aggregate rate
directly or indirectly
British Pound - Australian Dollar - New Zealand Dollar - Euro

43. ____________ should be denominated in the currency they will either be paid or received in...
Spot price
MXN - EUR - CHF
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
BS account balances

44. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
BRL
value
average rate
translation

45. 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...
is getting bigger
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 share = 1/3 case
valuable

46. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Forward contracts and Options
largest - It is open 24 hours a day - except weekends
Oracle
actual weighted average contract rate

47. How many currencies use Direct method of quoting?
There are FOUR
fx forward
Spot price
300 billion

48. Australian currency code is...
Forward Points
directly or indirectly
currency options and forward
AUD

49. Hedging instrument used in cash flow program is...
lost
FX policy
strengthens
currency options and forward

50. What is Fair Value hedge program used for?
financial strength
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
direct
less