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. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
1USD
strengthens
value
British Pound - Australian Dollar - New Zealand Dollar - Euro

2. An ___________ expresses the value of one currency relative to another
There are FOUR
exchange rate
90%
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

3. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
largest - It is open 24 hours a day - except weekends
Used to hedge against variability in expected future cash flows
MXN - EUR - CHF

4. What currencies use Direct method of quoting?
actual weighted average contract rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
1 unit
1USD

5. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Pound strengthens
13%
functional currency

6. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Oracle
foreign exchange forward contract
actual weighted average contract rate
AUD

7. How many currencies use Direct method of quoting?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
value
There are FOUR
functional currency

8. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
strengthens
foreign currency* rate
three digit ticker symbol ex: USD - United States Dollar
1 Case = 2 pizzas

9. The currency ticker for the Sweden Kroner is?
two business days
SEK
financial strength
3 business days and beyond

10. The Foreign Exchange market is the __________ market in the world
6 weeks prior to Q/E
largest - It is open 24 hours a day - except weekends
1.60 - Because you can buy more dollars
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

11. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
fx forward
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1.60 - Because you can buy more dollars

12. EUR-USD currency pair accounts for about ____ of all FX volume
30%
F&O account 87503
Forward Points
1.60 - Because you can buy more dollars

13. What is the ticker symbol for Brazilian Real?
300 billion
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 Case = 2 pizzas
BRL

14. All other currency trading with USD accounts for ____ of FX volume
Currency in which the entity reports results externally
21%
CNY
China - Malaysia - Colombia - Chile - Argentina

15. The difference in interest rate is referred to as...
Forward Points
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1 share = 1/3 case
5%

16. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Mitigates risks by using hedging techniques
What is happening
P&L activity
strengthens

17. Where are revaluations done?
more
Current market price - spot - plus or minus the difference between the interest rates of the two countries
CNY
Oracle

18. Treasury is responsible for managing companies funds and determining the firms'...
Pound strengthens
Current market price - spot - plus or minus the difference between the interest rates of the two countries
There are FOUR
financial strategy and financial policy

19. Give an example of one way to hedge a price increase in gas prices...
financial strategy and financial policy
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
directly or indirectly
fx forward

20. 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
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
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 strength

21. The offset of revaluation is recorded to...
F&O account 87503
12%
liquidity and cash
BS account balances

22. USD-JPY account for ____ of trading FX volume
AUD
1 Case = 2 pizzas
13%
1.40 - Because I would be able to buy more euros

23. What is reporting currency?
1.40 - Because I would be able to buy more euros
is getting bigger
more
Currency in which the entity reports results externally

24. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
largest - It is open 24 hours a day - except weekends
exchange one currency for another
is getting bigger
6 weeks prior to Q/E

25. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Oracle
strengthens
more
3 business days and beyond

26. What is currency Translation?

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27. Treasury's role is to identify risk - control to prevent erosion of...
weakens
The currency of the primary economic environment in which the legal entity operates
spot price x interest differential
financial strength

28. Hedging instrument used in cash flow program is...
financial strategy and financial policy
1 Case = 2 pizzas
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
currency options and forward

29. 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
allow FX rate
21%
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
exchange one currency for another

30. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
actual weighted average contract rate
adverse fluctuations
1 unit
foreign exchange forward contract

31. What is Revaluation?

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32. Give some examples of countries where its hard to hedge?
spot price x interest differential
P&L activity
China - Malaysia - Colombia - Chile - Argentina
Used to hedge against variability in expected future cash flows

33. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
Government regulation and cost of hedging
300 billion
adverse fluctuations

34. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
China - Malaysia - Colombia - Chile - Argentina
less
B/S rate

35. What is Functional Currency?
What is happening
liquidity and cash
lost
The currency of the primary economic environment in which the legal entity operates

36. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
lost
What is happening
1 share = 1/3 case
Forward contracts and Options

37. The ticker symbol for the Chinese Yuan
downward slope
3 -210 billion (3 trillion)
1USD
CNY

38. Forward points multiply the exchange rate by the...
1.40 - Because I would be able to buy more euros
3 business days and beyond
interest rate differential
foreign exchange forward contract

39. What is Fair Value hedge program used for?
valuable
FX policy
lost
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

40. How do you read EUR-USD = 1.40
Spot price
This means 1 Euro measured against US Dollars is worth $1.40
AUD
foreign currency* rate

41. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
directly or indirectly
What is happening
lost

42. __________ is used for translation of foreign currency B/S to reporting currency
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
B/S rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
valuable

43. Treasury is responsible for banking requirements - funding for the business and managing...
strengthens
financial risk
liquidity and cash
Treasury Daily Spot Rate

44. A Spot happens in...
Pound strengthens
actual weighted average contract rate
value
two business days

45. How does treasury accomplish its purpose?
5%
Mitigates risks by using hedging techniques
lost
BS account balances

46. Hedging instrument used in Fair Value Hedge program is...
fx forward
30%
Government regulation and cost of hedging
13%

47. What would happen if the US interest rate was bigger than Mexico?
allow FX rate
The calculation is the same - but instead of adding forward points you subtract
liquidity and cash
300 billion

48. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
actual weighted average contract rate
SEK
Forward Points
1 Case = 2 pizzas

49. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
interest rate differential
weakens
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates

50. When is hedge rate published?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
6 weeks prior to Q/E
Currency in which the entity reports results externally
actual weighted average contract rate