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 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?
1.40 - Because I would be able to buy more euros
interest rate differential
Pound strengthens
F&O account 87503

2. What is Fair Value hedge program used for?
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
End of Period Rate (SCO-4 rate)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

3. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1 share = 1/3 case
direct
spot price x interest differential

4. What currencies use Direct method of quoting?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
British Pound - Australian Dollar - New Zealand Dollar - Euro
Used to hedge against variability in expected future cash flows
functional currency

5. What is the ticker symbol for Brazilian Real?
Government regulation and cost of hedging
BRL
There are FOUR
1 Case = 2 pizzas

6. Direct quote- _____________=USD
more
currency options and forward
foreign currency* rate
F&O account 87503

7. The difference in interest rate is referred to as...
Forward Points
is getting bigger
End of Period Rate (SCO-4 rate)
BS account balances

8. The timing of when we execute hedges drastically impacts the ____________ we achieve
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
average rate
1 unit
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

9. 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
financial risk
12%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
downward slope

10. Where are revaluations done?
Oracle
directly or indirectly
90%
The difference between hedge rate and final effective hedge rate

11. How many currencies use Direct method of quoting?
3 -210 billion (3 trillion)
financial strength
largest - It is open 24 hours a day - except weekends
There are FOUR

12. What are the four major FX accounting guidances?
foreign exchange forward contract
strengthens
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
more

13. 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
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
21%

14. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
value
Treasury Daily Spot Rate
F&O account 87503

15. 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
13%
Pound strengthens
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

16. What rate is used to book daily transactions?
12%
Treasury Daily Spot Rate
Currency of the respective operating unit's country
BS account balances

17. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
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
three digit ticker symbol ex: USD - United States Dollar
lost
6 weeks prior to Q/E

18. 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.
SEK
The currency of the primary economic environment in which the legal entity operates
interest rate differential

19. What are some of the reason not hedge at all or partially hedge in a few countries?
1.40 - Because I would be able to buy more euros
Government regulation and cost of hedging
is getting bigger
This means 1 Euro measured against US Dollars is worth $1.40

20. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
exchange one currency for another
Forward contracts and Options
financial strength
Forward Points

21. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
21%
currency options and forward
value
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

22. What would happen if the US interest rate was bigger than Mexico?
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
BRL
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
The calculation is the same - but instead of adding forward points you subtract

23. Hedging instrument used in cash flow program is...
strengthens
1.40 - Because I would be able to buy more euros
currency options and forward
three digit ticker symbol ex: USD - United States Dollar

24. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
AUD
China - Malaysia - Colombia - Chile - Argentina
What is happening

25. When is hedge rate published?
B/S rate
China - Malaysia - Colombia - Chile - Argentina
SEK
6 weeks prior to Q/E

26. __________ is used for translation of foreign currency B/S to reporting currency
CNY
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
B/S rate
BS account balances

27. What is the trading in volume for FX?
interest rate differential
3 -210 billion (3 trillion)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Effective Hedge rate

28. What rate is used on the P&L?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
three digit ticker symbol ex: USD - United States Dollar
Currency of the respective operating unit's country
liquidity and cash

29. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
adverse fluctuations
Forward Points
foreign exchange forward contract
5%

30. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
SFAS 52
1.60 - Because you can buy more dollars
1 Case = 2 pizzas
3 -210 billion (3 trillion)

31. Treasury is responsible for banking requirements - funding for the business and managing...
This means 1 Euro measured against US Dollars is worth $1.40
more
three digit ticker symbol ex: USD - United States Dollar
financial risk

32. What is cash flow used for?
two business days
Used to hedge against variability in expected future cash flows
Government regulation and cost of hedging
financial risk

33. 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?
The difference between hedge rate and final effective hedge rate
largest - It is open 24 hours a day - except weekends
AUD
5%

34. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
functional currency
Indirect quote
1 share = 1/3 case
value

35. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
fx forward
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
more

36. Treasury ensures that companies have ____________ to meet its obligations
China - Malaysia - Colombia - Chile - Argentina
liquidity and cash
an estimate of aggregate rate
weakens

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

38. Forward points multiply the exchange rate by the...
spot price x interest differential
interest rate differential
AUD
BS account balances

39. US Treasuries is the second highest trading volume accounting for...
The currency of the primary economic environment in which the legal entity operates
SEK
300 billion
30%

40. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
21%
directly or indirectly
spot price x interest differential

41. 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...
BS account balances
is getting bigger
1.60 - Because you can buy more dollars
downward slope

42. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
BS account balances
The calculation is the same - but instead of adding forward points you subtract
foreign exchange forward contract

43. What instruments do we use to hedge?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
financial strategy and financial policy
functional currency
Forward contracts and Options

44. What rate is used on the balance sheet?
lost
Government regulation and cost of hedging
End of Period Rate (SCO-4 rate)
exchange one currency for another

45. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
Used to hedge against variability in expected future cash flows
1.60 - Because you can buy more dollars
financial strength

46. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Currency in which the entity reports results externally
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
lost
an estimate of aggregate rate

47. Treasury's role is to identify risk - control to prevent erosion of...
F&O account 87503
There are FOUR
BRL
financial strength

48. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
allow FX rate
AUD
liquidity and cash

49. What are the exceptions to the ticker naming convention?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1.40 - Because I would be able to buy more euros
The currency of the primary economic environment in which the legal entity operates
MXN - EUR - CHF

50. An ___________ expresses the value of one currency relative to another
is getting bigger
Effective Hedge rate
exchange rate
What is happening