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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. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
13%
1.40 - Because I would be able to buy more euros
SFAS 52
There are FOUR

2. How is the price of the forward contract determined?
functional currency
30%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
5%

3. ____________ should be denominated in the currency they will either be paid or received in...
direct
BS account balances
1USD
largest - It is open 24 hours a day - except weekends

4. B/S rate is used for revaluation of foreign currency transaction to...
21%
is getting bigger
functional currency
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

5. Direct quote- _____________=USD
foreign currency* rate
21%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
15 months in advance - layering on hedges through time

6. The timing of when we execute hedges drastically impacts the ____________ we achieve
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
two business days
Pound strengthens
average rate

7. Hedging instrument used in Fair Value Hedge program is...
CNY
End of Period Rate (SCO-4 rate)
fx forward
financial risk

8. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1 Case = 2 pizzas
an estimate of aggregate rate
CNY
Currency of the respective operating unit's country

9. 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?
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
1.40 - Because I would be able to buy more euros
directly or indirectly
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

10. Australian currency code is...
3 -210 billion (3 trillion)
The currency of the primary economic environment in which the legal entity operates
AUD
two business days

11. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
21%
1 share = 1/3 case
1 Case = 2 pizzas
three digit ticker symbol ex: USD - United States Dollar

12. The currency ticker for the Sweden Kroner is?
Pound strengthens
SEK
What is happening
Forward contracts and Options

13. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
exchange one currency for another
British Pound - Australian Dollar - New Zealand Dollar - Euro

14. What is Functional Currency?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
an estimate of aggregate rate
The currency of the primary economic environment in which the legal entity operates
FX policy

15. 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
translation
downward slope
Currency in which the entity reports results externally
P&L activity

16. How does treasury accomplish its purpose?
MXN - EUR - CHF
The currency of the primary economic environment in which the legal entity operates
Mitigates risks by using hedging techniques
lost

17. What rate is used on the P&L?
Currency in which the entity reports results externally
three digit ticker symbol ex: USD - United States Dollar
BRL
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

18. ____________ is used for translation of foreign currency P&L to Reporting currency?
1 unit
China - Malaysia - Colombia - Chile - Argentina
APL rate
FX policy

19. USD-JPY account for ____ of trading FX volume
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
13%
liquidity and cash
SEK

20. All other currency trading with USD accounts for ____ of FX volume
5%
largest - It is open 24 hours a day - except weekends
21%
3 business days and beyond

21. Hedging instrument used in cash flow program is...
3 business days and beyond
90%
currency options and forward
BRL

22. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
End of Period Rate (SCO-4 rate)
adverse fluctuations
5%

23. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
foreign exchange forward contract
strengthens
13%
MXN - EUR - CHF

24. The current market price for any currency pair is referred to as ?
Effective Hedge rate
Spot price
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1 share = 1/3 case

25. What is reporting currency?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SFAS 52
interest rate differential
Currency in which the entity reports results externally

26. 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.
strengthens
exchange one currency for another
1.60 - Because you can buy more dollars

27. Forward points multiply the exchange rate by the...
APL rate
is getting bigger
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
interest rate differential

28. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
F&O account 87503
1 share = 1/3 case
This means 1 Euro measured against US Dollars is worth $1.40
financial strategy and financial policy

29. What are some of the reason not hedge at all or partially hedge in a few countries?
two business days
an estimate of aggregate rate
Government regulation and cost of hedging
allow FX rate

30. Give an example of one way to hedge a price increase in gas prices...
actual weighted average contract rate
Forward Points
Effective Hedge rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

31. How far in advance do we hedge?
strengthens
15 months in advance - layering on hedges through time
exchange rate
This means 1 Euro measured against US Dollars is worth $1.40

32. The difference in interest rate is referred to as...
Forward Points
SFAS 52
Currency in which the entity reports results externally
3 business days and beyond

33. The ticker symbol for the Chinese Yuan
lost
CNY
P&L activity
1.60 - Because you can buy more dollars

34. What are the four major FX accounting guidances?
AUD
two business days
Current market price - spot - plus or minus the difference between the interest rates of the two countries
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

35. What does it mean to hedge?
5%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
foreign currency* rate
financial risk

36. What rate is used on the balance sheet?
exchange rate
The calculation is the same - but instead of adding forward points you subtract
The difference between hedge rate and final effective hedge rate
End of Period Rate (SCO-4 rate)

37. What is currency Translation?

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38. A forward happens in...
1 Case = 2 pizzas
3 business days and beyond
actual weighted average contract rate
The difference between hedge rate and final effective hedge rate

39. When is hedge rate published?
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.
13%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

40. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
F&O account 87503
less
1 Case = 2 pizzas

41. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
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
1 unit
value
SEK

42. In general EUR-USD is involved in roughly ___ of all FX volume
90%
Currency in which the entity reports results externally
financial strength
SFAS 52

43. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
SEK
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
functional currency

44. __________ is used for translation of foreign currency B/S to reporting currency
Current market price - spot - plus or minus the difference between the interest rates of the two countries
B/S rate
5%
APL rate

45. 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?
AUD
5%
strengthens
value

46. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
What is happening
Oracle
21%
AUD

47. 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
functional currency
Oracle
Forward Points
Pound strengthens

48. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro
90%

49. What are non-monetary accounts?
foreign exchange forward contract
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
End of Period Rate (SCO-4 rate)
SEK

50. What dictates minimum and maximum hedge percentages?
End of Period Rate (SCO-4 rate)
Currency of the respective operating unit's country
6 weeks prior to Q/E
FX policy