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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. Direct quote- _____________=USD
foreign currency* rate
13%
This means 1 Euro measured against US Dollars is worth $1.40
BRL

2. The rules for adding or subtracting forward points depend on whether it is quoted...
Currency of the respective operating unit's country
directly or indirectly
3 -210 billion (3 trillion)
12%

3. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
MXN - EUR - CHF
spot price x interest differential
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

4. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
SFAS 52
1USD
exchange one currency for another

5. What rate is used on the P&L?
30%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Currency of the respective operating unit's country
6 weeks prior to Q/E

6. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
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
an estimate of aggregate rate
What is happening

7. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Forward Points
Currency in which the entity reports results externally
currency options and forward
three digit ticker symbol ex: USD - United States Dollar

8. 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?
adverse fluctuations
5%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

9. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
The difference between hedge rate and final effective hedge rate
adverse fluctuations
5%
valuable

10. When is hedge rate published?
1.60 - Because you can buy more dollars
is getting bigger
6 weeks prior to Q/E
British Pound - Australian Dollar - New Zealand Dollar - Euro

11. What rate is used on the balance sheet?
Treasury Daily Spot Rate
End of Period Rate (SCO-4 rate)
3 business days and beyond
directly or indirectly

12. How is the hedge rate variance calculated?
largest - It is open 24 hours a day - except weekends
1 Case = 2 pizzas
F&O account 87503
The difference between hedge rate and final effective hedge rate

13. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
FX policy
more
two business days
1 share = 1/3 case

14. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
actual weighted average contract rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
functional currency

15. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
This means 1 Euro measured against US Dollars is worth $1.40
three digit ticker symbol ex: USD - United States Dollar
allow FX rate
Effective Hedge rate

16. Forward points is equal to...
MXN - EUR - CHF
spot price x interest differential
Effective Hedge rate
Forward Points

17. US Treasuries is the second highest trading volume accounting for...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Indirect quote
300 billion
5%

18. If 1 pizza = 15 USD then ____ = 1/15 pizza
End of Period Rate (SCO-4 rate)
1USD
1 Case = 2 pizzas
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

19. How does treasury accomplish its purpose?
an estimate of aggregate rate
Mitigates risks by using hedging techniques
90%
The difference between hedge rate and final effective hedge rate

20. What dictates minimum and maximum hedge percentages?
allow FX rate
3 -210 billion (3 trillion)
weakens
FX policy

21. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
strengthens
lost
B/S rate
Effective Hedge rate

22. EUR-USD currency pair accounts for about ____ of all FX volume
Oracle
30%
AUD
direct

23. What is the trading in volume for FX?
lost
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
fx forward
3 -210 billion (3 trillion)

24. Australian currency code is...
What is happening
AUD
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
financial risk

25. USD-JPY account for ____ of trading FX volume
13%
Currency of the respective operating unit's country
6 weeks prior to Q/E
AUD

26. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
1 Case = 2 pizzas
12%
actual weighted average contract rate
30%

27. The ticker symbol for the Chinese Yuan
CNY
6 weeks prior to Q/E
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
China - Malaysia - Colombia - Chile - Argentina

28. The current market price for any currency pair is referred to as ?
Spot price
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Currency of the respective operating unit's country
value

29. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
There are FOUR
The difference between hedge rate and final effective hedge rate
1.40 - Because I would be able to buy more euros

30. What are non-monetary accounts?
15 months in advance - layering on hedges through time
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
6 weeks prior to Q/E

31. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Forward Points
interest rate differential
5%

32. Treasury's role is to identify risk - control to prevent erosion of...
average rate
financial strength
three digit ticker symbol ex: USD - United States Dollar
1 share = 1/3 case

33. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
directly or indirectly
Mitigates risks by using hedging techniques
direct
an estimate of aggregate rate

34. Treasury is responsible for managing companies funds and determining the firms'...
21%
financial strategy and financial policy
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
fx forward

35. Give an example of one way to hedge a price increase in gas prices...
translation
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Treasury Daily Spot Rate
1.40 - Because I would be able to buy more euros

36. 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
three digit ticker symbol ex: USD - United States Dollar
exchange one currency for another
largest - It is open 24 hours a day - except weekends

37. What instruments do we use to hedge?
End of Period Rate (SCO-4 rate)
Currency of the respective operating unit's country
financial strategy and financial policy
Forward contracts and Options

38. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
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
more
spot price x interest differential
largest - It is open 24 hours a day - except weekends

39. A Spot happens in...
6 weeks prior to Q/E
two business days
The difference between hedge rate and final effective hedge rate
lost

40. How do you read EUR-USD = 1.40
directly or indirectly
FX policy
End of Period Rate (SCO-4 rate)
This means 1 Euro measured against US Dollars is worth $1.40

41. The timing of when we execute hedges drastically impacts the ____________ we achieve
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
actual weighted average contract rate
The difference between hedge rate and final effective hedge rate
average rate

42. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
6 weeks prior to Q/E
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1 unit

43. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
1.40 - Because I would be able to buy more euros
SEK
strengthens
financial strength

44. __________ is used for translation of foreign currency B/S to reporting currency
The currency of the primary economic environment in which the legal entity operates
B/S rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
more

45. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Forward Points
British Pound - Australian Dollar - New Zealand Dollar - Euro
Spot price
less

46. A forward happens in...
F&O account 87503
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
directly or indirectly
3 business days and beyond

47. The difference in interest rate is referred to as...
direct
China - Malaysia - Colombia - Chile - Argentina
Used to hedge against variability in expected future cash flows
Forward Points

48. How is the price of the forward contract determined?
3 -210 billion (3 trillion)
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strategy and financial policy

49. What is currency Translation?

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50. What is cash flow used for?
Used to hedge against variability in expected future cash flows
lost
12%
actual weighted average contract rate