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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. The current market price for any currency pair is referred to as ?
Spot price
foreign exchange forward contract
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
13%

2. The Foreign Exchange market is the __________ market in the world
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
largest - It is open 24 hours a day - except weekends
Government regulation and cost of hedging
3 business days and beyond

3. Where are revaluations done?
Forward Points
financial risk
average rate
Oracle

4. The timing of when we execute hedges drastically impacts the ____________ we achieve
downward slope
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
3 business days and beyond
average rate

5. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
1 Case = 2 pizzas
6 weeks prior to Q/E
functional currency

6. How is the price of the forward contract determined?
300 billion
Current market price - spot - plus or minus the difference between the interest rates of the two countries
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

7. When is hedge rate published?
6 weeks prior to Q/E
functional currency
lost
SFAS 52

8. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
12%
foreign currency* rate
weakens

9. 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
China - Malaysia - Colombia - Chile - Argentina
CNY
Pound strengthens
SFAS 52

10. If 1 pizza = 15 USD then ____ = 1/15 pizza
Current market price - spot - plus or minus the difference between the interest rates of the two countries
less
1USD
Treasury Daily Spot Rate

11. An ___________ expresses the value of one currency relative to another
interest rate differential
Used to hedge against variability in expected future cash flows
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
exchange rate

12. What rate is used on the P&L?
FX policy
Currency of the respective operating unit's country
lost
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

13. The offset of revaluation is recorded to...
BRL
direct
Effective Hedge rate
F&O account 87503

14. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
End of Period Rate (SCO-4 rate)
translation
two business days
1 Case = 2 pizzas

15. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Mitigates risks by using hedging techniques
value
BRL

16. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
Forward Points
strengthens
less

17. A Spot happens in...
China - Malaysia - Colombia - Chile - Argentina
two business days
Used to hedge against variability in expected future cash flows
5%

18. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
valuable
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
Treasury Daily Spot Rate
lost

19. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
Effective Hedge rate
fx forward
financial risk

20. What are monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
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
translation
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

21. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
30%
exchange one currency for another

22. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
more
exchange one currency for another
There are FOUR
21%

23. What are non-monetary accounts?
more
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
foreign exchange forward contract

24. Treasury's role is to identify risk - control to prevent erosion of...
FX policy
300 billion
weakens
financial strength

25. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
BRL
financial strategy and financial policy
Oracle

26. EUR-USD currency pair accounts for about ____ of all FX volume
300 billion
30%
British Pound - Australian Dollar - New Zealand Dollar - Euro
allow FX rate

27. What is Revaluation?

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28. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
12%
adverse fluctuations
21%
strengthens

29. Revaluation can be hedged - while ___________ cannot be hedged
translation
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
5%
lost

30. Forward points is equal to...
China - Malaysia - Colombia - Chile - Argentina
spot price x interest differential
The difference between hedge rate and final effective hedge rate
foreign exchange forward contract

31. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
SFAS 52
actual weighted average contract rate
financial strategy and financial policy
Oracle

32. What currencies use Direct method of quoting?
downward slope
What is happening
British Pound - Australian Dollar - New Zealand Dollar - Euro
financial strategy and financial policy

33. Australian currency code is...
Treasury Daily Spot Rate
AUD
1.40 - Because I would be able to buy more euros
weakens

34. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
lost
direct
directly or indirectly
weakens

35. What is cash flow used for?
13%
British Pound - Australian Dollar - New Zealand Dollar - Euro
valuable
Used to hedge against variability in expected future cash flows

36. GBP-USD account for ____ of trading FX volume
lost
5%
21%
12%

37. The difference in interest rate is referred to as...
1.40 - Because I would be able to buy more euros
financial strength
Forward Points
translation

38. 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
1.60 - Because you can buy more dollars
allow FX rate
1.40 - Because I would be able to buy more euros
Effective Hedge rate

39. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Spot price
foreign exchange forward contract
valuable
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

40. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Current market price - spot - plus or minus the difference between the interest rates of the two countries
directly or indirectly
SFAS 52
1 Case = 2 pizzas

41. 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?
currency options and forward
foreign exchange forward contract
5%
less

42. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
1.40 - Because I would be able to buy more euros
Currency of the respective operating unit's country
90%

43. Give an example of one way to hedge a price increase in gas prices...
average rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SFAS 52
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

44. What are the four major FX accounting guidances?
AUD
British Pound - Australian Dollar - New Zealand Dollar - Euro
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

45. Treasury is responsible for managing companies funds and determining the firms'...
1USD
strengthens
translation
financial strategy and financial policy

46. What is currency Translation?

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47. Give some examples of countries where its hard to hedge?
valuable
strengthens
two business days
China - Malaysia - Colombia - Chile - Argentina

48. 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?
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
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
allow FX rate

49. How many currencies use Direct method of quoting?
3 business days and beyond
There are FOUR
Effective Hedge rate
1 Case = 2 pizzas

50. Treasury is responsible for banking requirements - funding for the business and managing...
Forward contracts and Options
financial risk
directly or indirectly
largest - It is open 24 hours a day - except weekends