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. Treasury's role is to identify risk - control to prevent erosion of...
Pound strengthens
financial strength
fx forward
Current market price - spot - plus or minus the difference between the interest rates of the two countries

2. Revaluation can be hedged - while ___________ cannot be hedged
largest - It is open 24 hours a day - except weekends
translation
Spot price
B/S rate

3. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
an estimate of aggregate rate
valuable
Spot price
3 business days and beyond

4. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
What is happening
1 Case = 2 pizzas
fx forward

5. ____________ is used for translation of foreign currency P&L to Reporting currency?
1.40 - Because I would be able to buy more euros
exchange rate
APL rate
BS account balances

6. The difference in interest rate is referred to as...
actual weighted average contract rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
AUD
Forward Points

7. 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?
direct
foreign currency* rate
1.40 - Because I would be able to buy more euros
The currency of the primary economic environment in which the legal entity operates

8. The currency ticker for the Sweden Kroner is?
China - Malaysia - Colombia - Chile - Argentina
What is happening
currency options and forward
SEK

9. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
an estimate of aggregate rate
is getting bigger
1 unit
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

10. An ___________ expresses the value of one currency relative to another
MXN - EUR - CHF
allow FX rate
5%
exchange rate

11. GBP-USD account for ____ of trading FX volume
12%
three digit ticker symbol ex: USD - United States Dollar
FX policy
Pound strengthens

12. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
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 -210 billion (3 trillion)
financial strength

13. 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
Indirect quote
allow FX rate
currency options and forward
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

14. Forward points is equal to...
directly or indirectly
is getting bigger
spot price x interest differential
B/S rate

15. How far in advance do we hedge?
1 share = 1/3 case
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
direct
15 months in advance - layering on hedges through time

16. How is the hedge rate variance calculated?
functional currency
The difference between hedge rate and final effective hedge rate
12%
There are FOUR

17. __________ is used for translation of foreign currency B/S to reporting currency
AUD
B/S rate
less
The calculation is the same - but instead of adding forward points you subtract

18. Treasury ensures that companies have ____________ to meet its obligations
Forward contracts and Options
Government regulation and cost of hedging
1 unit
liquidity and cash

19. A forward happens in...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 business days and beyond
exchange rate
functional currency

20. When is hedge rate published?
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.
direct
6 weeks prior to Q/E

21. What is local currency?

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22. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
B/S rate
strengthens
This means 1 Euro measured against US Dollars is worth $1.40
functional currency

23. What are non-monetary accounts?
3 business days and beyond
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
currency options and forward
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

24. The ticker symbol for the Chinese Yuan
1 unit
CNY
End of Period Rate (SCO-4 rate)
British Pound - Australian Dollar - New Zealand Dollar - Euro

25. Treasury is responsible for banking requirements - funding for the business and managing...
valuable
weakens
Used to hedge against variability in expected future cash flows
financial risk

26. Australian currency code is...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Government regulation and cost of hedging
AUD
21%

27. The offset of revaluation is recorded to...
F&O account 87503
Mitigates risks by using hedging techniques
Forward Points
functional currency

28. Direct quote- _____________=USD
foreign currency* rate
Treasury Daily Spot Rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1 share = 1/3 case

29. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
90%
Currency in which the entity reports results externally
exchange one currency for another

30. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
largest - It is open 24 hours a day - except weekends
This means 1 Euro measured against US Dollars is worth $1.40
weakens
13%

31. The current market price for any currency pair is referred to as ?
China - Malaysia - Colombia - Chile - Argentina
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Used to hedge against variability in expected future cash flows
Spot price

32. A Spot happens in...
6 weeks prior to Q/E
SEK
weakens
two business days

33. What dictates minimum and maximum hedge percentages?
FX policy
3 -210 billion (3 trillion)
two business days
Used to hedge against variability in expected future cash flows

34. If 1 pizza = 15 USD then ____ = 1/15 pizza
valuable
1USD
direct
spot price x interest differential

35. Where are revaluations done?
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
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Pound strengthens
Oracle

36. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
21%
Currency of the respective operating unit's country
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

37. How many currencies use Direct method of quoting?
allow FX rate
functional currency
The calculation is the same - but instead of adding forward points you subtract
There are FOUR

38. What is Functional Currency?
foreign currency* rate
MXN - EUR - CHF
three digit ticker symbol ex: USD - United States Dollar
The currency of the primary economic environment in which the legal entity operates

39. ____________ should be denominated in the currency they will either be paid or received in...
fx forward
exchange rate
BS account balances
largest - It is open 24 hours a day - except weekends

40. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
less
There are FOUR
more

41. What rate is used to book daily transactions?
actual weighted average contract rate
Treasury Daily Spot Rate
1.40 - Because I would be able to buy more euros
Mitigates risks by using hedging techniques

42. 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.
directly or indirectly
MXN - EUR - CHF
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

43. 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
1 Case = 2 pizzas
Used to hedge against variability in expected future cash flows
three digit ticker symbol ex: USD - United States Dollar
downward slope

44. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
financial risk
foreign exchange forward contract
exchange rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

45. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
translation
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

46. Give an example of one way to hedge a price increase in gas prices...
300 billion
financial strategy and financial policy
BRL
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

47. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
CNY
1 share = 1/3 case
P&L activity
21%

48. 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
Pound strengthens
1 Case = 2 pizzas
MXN - EUR - CHF
90%

49. USD-JPY account for ____ of trading FX volume
1 Case = 2 pizzas
APL rate
13%
Forward contracts and Options

50. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
End of Period Rate (SCO-4 rate)
1.60 - Because you can buy more dollars
three digit ticker symbol ex: USD - United States Dollar