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 is local currency?

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2. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
foreign exchange forward contract
300 billion
The difference between hedge rate and final effective hedge rate
1 unit

3. Forward points multiply the exchange rate by the...
1.60 - Because you can buy more dollars
foreign currency* rate
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
interest rate differential

4. Give an example of one way to hedge a price increase in gas prices...
Forward contracts and Options
currency options and forward
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1 unit

5. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1 share = 1/3 case
an estimate of aggregate rate
1.60 - Because you can buy more dollars
China - Malaysia - Colombia - Chile - Argentina

6. 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...
is getting bigger
1.60 - Because you can buy more dollars
interest rate differential
allow FX rate

7. Hedging instrument used in Fair Value Hedge program is...
actual weighted average contract rate
fx forward
MXN - EUR - CHF
This means 1 Euro measured against US Dollars is worth $1.40

8. 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
strengthens
downward slope
Mitigates risks by using hedging techniques
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

9. __________ is used for translation of foreign currency B/S to reporting currency
weakens
B/S rate
valuable
less

10. The ticker symbol for the Chinese Yuan
APL rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Used to hedge against variability in expected future cash flows
CNY

11. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
liquidity and cash
currency options and forward
less
SEK

12. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
BRL
1.40 - Because I would be able to buy more euros
foreign exchange forward contract

13. If 1 pizza = 15 USD then ____ = 1/15 pizza
F&O account 87503
1USD
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
an estimate of aggregate rate

14. All other currency trading with USD accounts for ____ of FX volume
1.40 - Because I would be able to buy more euros
APL rate
21%
CNY

15. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
lost
downward slope
90%

16. Forward points is equal to...
Indirect quote
functional currency
downward slope
spot price x interest differential

17. Revaluation can be hedged - while ___________ cannot be hedged
less
Spot price
translation
financial risk

18. EUR-USD currency pair accounts for about ____ of all FX volume
exchange rate
21%
30%
SFAS 52

19. The current market price for any currency pair is referred to as ?
Spot price
Oracle
CNY
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

20. What is currency Translation?

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21. B/S rate is used for revaluation of foreign currency transaction to...
financial strength
an estimate of aggregate rate
functional currency
direct

22. Treasury is responsible for banking requirements - funding for the business and managing...
1.40 - Because I would be able to buy more euros
lost
adverse fluctuations
financial risk

23. A forward happens in...
3 business days and beyond
value
Government regulation and cost of hedging
allow FX rate

24. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
foreign currency* rate
exchange one currency for another
largest - It is open 24 hours a day - except weekends
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

25. What dictates minimum and maximum hedge percentages?
1 share = 1/3 case
largest - It is open 24 hours a day - except weekends
1.40 - Because I would be able to buy more euros
FX policy

26. Hedging instrument used in cash flow program is...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
less
Treasury Daily Spot Rate
currency options and forward

27. How far in advance do we hedge?
CNY
15 months in advance - layering on hedges through time
Forward Points
Currency of the respective operating unit's country

28. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
AUD
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
direct

29. What are monetary accounts?
B/S rate
SFAS 52
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Used to hedge against variability in expected future cash flows

30. US Treasuries is the second highest trading volume accounting for...
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro
The currency of the primary economic environment in which the legal entity operates
300 billion

31. What is cash flow used for?
Used to hedge against variability in expected future cash flows
directly or indirectly
30%
exchange one currency for another

32. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The calculation is the same - but instead of adding forward points you subtract
SEK

33. When is hedge rate published?
1USD
6 weeks prior to Q/E
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
largest - It is open 24 hours a day - except weekends

34. USD-JPY account for ____ of trading FX volume
interest rate differential
financial risk
This means 1 Euro measured against US Dollars is worth $1.40
13%

35. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
strengthens
three digit ticker symbol ex: USD - United States Dollar
value
BS account balances

36. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
actual weighted average contract rate
Effective Hedge rate
Forward contracts and Options
financial risk

37. What is reporting currency?
largest - It is open 24 hours a day - except weekends
an estimate of aggregate rate
Currency in which the entity reports results externally
30%

38. An ___________ expresses the value of one currency relative to another
Pound strengthens
functional currency
exchange rate
is getting bigger

39. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Mitigates risks by using hedging techniques
direct
Currency of the respective operating unit's country
British Pound - Australian Dollar - New Zealand Dollar - Euro

40. The Foreign Exchange market is the __________ market in the world
The difference between hedge rate and final effective hedge rate
Pound strengthens
weakens
largest - It is open 24 hours a day - except weekends

41. GBP-USD account for ____ of trading FX volume
3 business days and beyond
value
12%
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

42. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
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
functional currency
1 unit

43. Give some examples of countries where its hard to hedge?
is getting bigger
China - Malaysia - Colombia - Chile - Argentina
1.60 - Because you can buy more dollars
1.40 - Because I would be able to buy more euros

44. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
value
CNY
AUD
actual weighted average contract rate

45. How is the hedge rate variance calculated?
translation
currency options and forward
The difference between hedge rate and final effective hedge rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

46. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1 Case = 2 pizzas
lost

47. What instruments do we use to hedge?
CNY
Forward Points
Forward contracts and Options
weakens

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

49. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
foreign currency* rate
The calculation is the same - but instead of adding forward points you subtract
13%

50. Treasury's role is to identify risk - control to prevent erosion of...
This means 1 Euro measured against US Dollars is worth $1.40
interest rate differential
financial strength
Oracle