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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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 difference in interest rate is referred to as...
value
spot price x interest differential
two business days
Forward Points

2. 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?
actual weighted average contract rate
B/S rate
15 months in advance - layering on hedges through time
1.40 - Because I would be able to buy more euros

3. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
weakens
90%
foreign exchange forward contract
300 billion

4. Hedging instrument used in Fair Value Hedge program is...
fx forward
Effective Hedge rate
What is happening
SFAS 52

5. What is the trading in volume for FX?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
1 share = 1/3 case
direct
3 -210 billion (3 trillion)

6. What dictates minimum and maximum hedge percentages?
F&O account 87503
Current market price - spot - plus or minus the difference between the interest rates of the two countries
FX policy
12%

7. What are the exceptions to the ticker naming convention?
There are FOUR
90%
15 months in advance - layering on hedges through time
MXN - EUR - CHF

8. 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
1 unit
1 Case = 2 pizzas
Effective Hedge rate

9. The currency ticker for the Sweden Kroner is?
MXN - EUR - CHF
Forward contracts and Options
Currency in which the entity reports results externally
SEK

10. Australian currency code is...
China - Malaysia - Colombia - Chile - Argentina
1.40 - Because I would be able to buy more euros
interest rate differential
AUD

11. 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
British Pound - Australian Dollar - New Zealand Dollar - Euro
three digit ticker symbol ex: USD - United States Dollar
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

12. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
BS account balances
BRL
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

13. What are the four major FX accounting guidances?
1.60 - Because you can buy more dollars
BS account balances
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
15 months in advance - layering on hedges through time

14. A Spot happens in...
value
two business days
direct
Currency of the respective operating unit's country

15. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
foreign currency* rate
liquidity and cash
AUD

16. The current market price for any currency pair is referred to as ?
is getting bigger
valuable
Spot price
exchange rate

17. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
15 months in advance - layering on hedges through time
an estimate of aggregate rate
SEK
1 share = 1/3 case

18. What is reporting currency?
90%
Pound strengthens
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
Currency in which the entity reports results externally

19. What is the ticker symbol for Brazilian Real?
BRL
is getting bigger
Effective Hedge rate
The difference between hedge rate and final effective hedge rate

20. What is currency Translation?

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21. What are non-monetary accounts?
currency options and forward
actual weighted average contract rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
interest rate differential

22. What are monetary accounts?
allow FX rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
valuable
21%

23. EUR-USD currency pair accounts for about ____ of all FX volume
13%
30%
6 weeks prior to Q/E
Mitigates risks by using hedging techniques

24. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Oracle
P&L activity
British Pound - Australian Dollar - New Zealand Dollar - Euro

25. 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 average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
15 months in advance - layering on hedges through time
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
5%

26. 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
is getting bigger
fx forward
MXN - EUR - CHF

27. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Spot price
actual weighted average contract rate
AUD
translation

28. How many currencies use Direct method of quoting?
What is happening
foreign exchange forward contract
BRL
There are FOUR

29. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
Mitigates risks by using hedging techniques
Used to hedge against variability in expected future cash flows
functional currency

30. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
weakens
largest - It is open 24 hours a day - except weekends
adverse fluctuations

31. Give an example of one way to hedge a price increase in gas prices...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
5%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1.40 - Because I would be able to buy more euros

32. Where are revaluations done?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Oracle
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
There are FOUR

33. How is the hedge rate variance calculated?
liquidity and cash
translation
The difference between hedge rate and final effective hedge rate
MXN - EUR - CHF

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

35. What instruments do we use to hedge?
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
5%
Forward contracts and Options

36. Treasury's role is to identify risk - control to prevent erosion of...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
financial strength
AUD

37. Treasury ensures that companies have ____________ to meet its obligations
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%
liquidity and cash
Oracle

38. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
The currency of the primary economic environment in which the legal entity operates
lost
downward slope

39. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
translation
1.60 - Because you can buy more dollars
direct
actual weighted average contract rate

40. US Treasuries is the second highest trading volume accounting for...
What is happening
300 billion
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
MXN - EUR - CHF

41. Direct quote- _____________=USD
foreign currency* rate
valuable
21%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

42. What rate is used to book daily transactions?
less
direct
MXN - EUR - CHF
Treasury Daily Spot Rate

43. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
actual weighted average contract rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

44. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
valuable
1.60 - Because you can buy more dollars
interest rate differential
adverse fluctuations

45. ____________ is used for translation of foreign currency P&L to Reporting currency?
1 share = 1/3 case
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
APL rate
fx forward

46. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
lost
P&L activity
direct
Treasury Daily Spot Rate

47. In general EUR-USD is involved in roughly ___ of all FX volume
SEK
valuable
90%
Mitigates risks by using hedging techniques

48. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
FX policy
weakens
Treasury Daily Spot Rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

49. ____________ - foreign currency/rate = USD
foreign exchange forward contract
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Indirect quote

50. The ticker symbol for the Chinese Yuan
CNY
1 share = 1/3 case
APL rate
exchange one currency for another

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Foreign Exchange Essentials

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