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. What are the four major FX accounting guidances?
12%
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
foreign currency* rate

2. What is Fair Value hedge program used for?
APL rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
strengthens
What is happening

3. What is the trading in volume for FX?
is getting bigger
3 -210 billion (3 trillion)
financial strategy and financial policy
5%

4. A forward happens in...
3 business days and beyond
value
The currency of the primary economic environment in which the legal entity operates
British Pound - Australian Dollar - New Zealand Dollar - Euro

5. The Foreign Exchange market is the __________ market in the world
interest rate differential
The currency of the primary economic environment in which the legal entity operates
1 unit
largest - It is open 24 hours a day - except weekends

6. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Government regulation and cost of hedging
strengthens
Spot price
adverse fluctuations

7. What are monetary accounts?
foreign currency* rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
average rate

8. In general EUR-USD is involved in roughly ___ of all FX volume
90%
P&L activity
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
currency options and forward

9. All other currency trading with USD accounts for ____ of FX volume
300 billion
weakens
21%
12%

10. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
exchange rate
largest - It is open 24 hours a day - except weekends
adverse fluctuations
Effective Hedge rate

11. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
1 unit
functional currency
FX policy

12. The currency ticker for the Sweden Kroner is?
SEK
weakens
APL rate
The difference between hedge rate and final effective hedge rate

13. 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
foreign currency* rate
Pound strengthens
Current market price - spot - plus or minus the difference between the interest rates of the two countries
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

14. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
MXN - EUR - CHF
China - Malaysia - Colombia - Chile - Argentina
1.60 - Because you can buy more dollars

15. Give some examples of countries where its hard to hedge?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
SFAS 52
Oracle
China - Malaysia - Colombia - Chile - Argentina

16. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
CNY
The calculation is the same - but instead of adding forward points you subtract
value
strengthens

17. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
downward slope
allow FX rate
Forward contracts and Options

18. ____________ is used for translation of foreign currency P&L to Reporting currency?
Effective Hedge 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
APL rate

19. What is local currency?

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20. What is the ticker symbol for Brazilian Real?
BRL
financial risk
financial strategy and financial policy
FX policy

21. ____________ should be denominated in the currency they will either be paid or received in...
more
5%
BS account balances
FX policy

22. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Currency in which the entity reports results externally
Indirect quote
lost
more

23. What currencies use Direct method of quoting?
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
P&L activity

24. 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
Indirect quote
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
5%

25. What are some of the reason not hedge at all or partially hedge in a few countries?
Oracle
translation
Government regulation and cost of hedging
There are FOUR

26. What rate is used on the balance sheet?
FX policy
What is happening
F&O account 87503
End of Period Rate (SCO-4 rate)

27. The rules for adding or subtracting forward points depend on whether it is quoted...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
directly or indirectly
Indirect quote
foreign currency* rate

28. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
two business days
less
15 months in advance - layering on hedges through time
financial risk

29. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
translation
fx forward

30. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
exchange rate
an estimate of aggregate rate
3 -210 billion (3 trillion)
The calculation is the same - but instead of adding forward points you subtract

31. What does it mean to hedge?
currency options and forward
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
lost
exchange rate

32. An ___________ expresses the value of one currency relative to another
financial strength
1 share = 1/3 case
financial strategy and financial policy
exchange rate

33. The timing of when we execute hedges drastically impacts the ____________ we achieve
lost
average rate
exchange one currency for another
3 business days and beyond

34. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
1USD
Pound strengthens
exchange one currency for another
Forward Points

35. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
There are FOUR
BS account balances
1USD
SFAS 52

36. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
is getting bigger
direct
SEK
adverse fluctuations

37. Treasury ensures that companies have ____________ to meet its obligations
CNY
lost
liquidity and cash
Treasury Daily Spot Rate

38. 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
lost
functional currency
MXN - EUR - CHF

39. What rate is used to book daily transactions?
Treasury Daily Spot Rate
more
Mitigates risks by using hedging techniques
This means 1 Euro measured against US Dollars is worth $1.40

40. What is Revaluation?

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41. Hedging instrument used in Fair Value Hedge program is...
fx forward
allow FX rate
China - Malaysia - Colombia - Chile - Argentina
1 Case = 2 pizzas

42. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
21%
interest rate differential
30%
1 Case = 2 pizzas

43. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
APL rate
1 share = 1/3 case
Treasury Daily Spot Rate
interest rate differential

44. What is currency Translation?

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45. Where are revaluations done?
300 billion
Oracle
30%
5%

46. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
What is happening
weakens
Government regulation and cost of hedging

47. 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
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Pound strengthens
CNY
downward slope

48. 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
financial risk
allow FX rate
an estimate of aggregate rate
is getting bigger

49. What are the exceptions to the ticker naming convention?
foreign currency* rate
SFAS 52
Effective Hedge rate
MXN - EUR - CHF

50. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
interest rate differential
15 months in advance - layering on hedges through time
direct
fx forward