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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. 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
SFAS 52
China - Malaysia - Colombia - Chile - Argentina
functional currency

2. Where are revaluations done?
12%
6 weeks prior to Q/E
Oracle
direct

3. What are some of the reason not hedge at all or partially hedge in a few countries?
foreign exchange forward contract
13%
BS account balances
Government regulation and cost of hedging

4. All other currency trading with USD accounts for ____ of FX volume
21%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1 unit
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

5. A forward happens in...
downward slope
1 Case = 2 pizzas
SFAS 52
3 business days and beyond

6. What are monetary accounts?
two business days
Government regulation and cost of hedging
Oracle
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

7. The currency ticker for the Sweden Kroner is?
FX policy
financial strength
SEK
B/S rate

8. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
allow FX rate
BS account balances
exchange one currency for another
three digit ticker symbol ex: USD - United States Dollar

9. What are the four major FX accounting guidances?
average rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
valuable

10. What is Fair Value hedge program used for?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
300 billion
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
P&L activity

11. 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
Mitigates risks by using hedging techniques
downward slope
directly or indirectly
1.60 - Because you can buy more dollars

12. How do you read EUR-USD = 1.40
Mitigates risks by using hedging techniques
1USD
financial strength
This means 1 Euro measured against US Dollars is worth $1.40

13. What would happen if the US interest rate was bigger than Mexico?
SFAS 52
The calculation is the same - but instead of adding forward points you subtract
SEK
exchange rate

14. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
15 months in advance - layering on hedges through time
AUD
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

15. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
BRL
F&O account 87503
1.60 - Because you can buy more dollars

16. How many currencies use Direct method of quoting?
The calculation is the same - but instead of adding forward points you subtract
There are FOUR
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
British Pound - Australian Dollar - New Zealand Dollar - Euro

17. The timing of when we execute hedges drastically impacts the ____________ we achieve
largest - It is open 24 hours a day - except weekends
China - Malaysia - Colombia - Chile - Argentina
average rate
fx forward

18. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
FX policy
functional currency
MXN - EUR - CHF
an estimate of aggregate rate

19. What is the trading in volume for FX?
APL rate
Oracle
3 -210 billion (3 trillion)
interest rate differential

20. The offset of revaluation is recorded to...
Currency of the respective operating unit's country
F&O account 87503
direct
is getting bigger

21. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
currency options and forward
Treasury Daily Spot Rate
three digit ticker symbol ex: USD - United States Dollar

22. 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
three digit ticker symbol ex: USD - United States Dollar
direct
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

23. US Treasuries is the second highest trading volume accounting for...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
300 billion
There are FOUR

24. The Foreign Exchange market is the __________ market in the world
F&O account 87503
largest - It is open 24 hours a day - except weekends
What is happening
Treasury Daily Spot Rate

25. An ___________ expresses the value of one currency relative to another
exchange rate
1.40 - Because I would be able to buy more euros
liquidity and cash
functional currency

26. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
an estimate of aggregate rate
functional currency
MXN - EUR - CHF
P&L activity

27. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
The currency of the primary economic environment in which the legal entity operates
There are FOUR
directly or indirectly
more

28. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
13%
foreign exchange forward contract
an estimate of aggregate rate
SEK

29. Direct quote- _____________=USD
12%
Forward Points
foreign currency* rate
two business days

30. What is local currency?

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31. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
exchange one currency for another
300 billion
lost

32. __________ is used for translation of foreign currency B/S to reporting currency
British Pound - Australian Dollar - New Zealand Dollar - Euro
exchange rate
B/S rate
spot price x interest differential

33. How is the hedge rate variance calculated?
adverse fluctuations
90%
direct
The difference between hedge rate and final effective hedge rate

34. A Spot happens in...
Effective Hedge rate
valuable
two business days
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

35. If you are an American planning a trip to Europe - which exchange rate would you rather have to convert your US Dollars to Euro? 1.40 or 1.60?
currency options and forward
exchange one currency for another
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1.40 - Because I would be able to buy more euros

36. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
functional currency
SFAS 52
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
foreign exchange forward contract

37. Forward points multiply the exchange rate by the...
interest rate differential
What is happening
British Pound - Australian Dollar - New Zealand Dollar - Euro
allow FX rate

38. ____________ should be denominated in the currency they will either be paid or received in...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
currency options and forward
1 Case = 2 pizzas
BS account balances

39. The difference in interest rate is referred to as...
direct
Forward Points
more
1.40 - Because I would be able to buy more euros

40. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
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
two business days
3 business days and beyond
1.60 - Because you can buy more dollars

41. What currencies use Direct method of quoting?
End of Period Rate (SCO-4 rate)
British Pound - Australian Dollar - New Zealand Dollar - Euro
Indirect quote
valuable

42. Forward points is equal to...
exchange one currency for another
spot price x interest differential
The difference between hedge rate and final effective hedge rate
an estimate of aggregate rate

43. What is currency Translation?

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44. Revaluation can be hedged - while ___________ cannot be hedged
liquidity and cash
translation
exchange one currency for another
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

45. What are the exceptions to the ticker naming convention?
Forward Points
MXN - EUR - CHF
P&L activity
British Pound - Australian Dollar - New Zealand Dollar - Euro

46. What does it mean to hedge?
B/S rate
Pound strengthens
The difference between hedge rate and final effective hedge rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

47. 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?
foreign currency* rate
SFAS 52
5%
The calculation is the same - but instead of adding forward points you subtract

48. What dictates minimum and maximum hedge percentages?
is getting bigger
FX policy
financial risk
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

49. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
3 business days and beyond
valuable
Treasury Daily Spot Rate
Pound strengthens

50. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
fx forward
Effective Hedge rate
13%
1 unit