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. 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?
F&O account 87503
5%
P&L activity
6 weeks prior to Q/E

2. In general EUR-USD is involved in roughly ___ of all FX volume
BRL
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial strategy and financial policy
90%

3. The currency ticker for the Sweden Kroner is?
SEK
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
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
13%

4. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
is getting bigger
currency options and forward
SFAS 52
actual weighted average contract rate

5. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Current market price - spot - plus or minus the difference between the interest rates of the two countries
MXN - EUR - CHF
direct
adverse fluctuations

6. An ___________ expresses the value of one currency relative to another
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.
exchange rate
3 -210 billion (3 trillion)

7. How is the price of the forward contract determined?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Current market price - spot - plus or minus the difference between the interest rates of the two countries
directly or indirectly
financial risk

8. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
There are FOUR
value
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Forward contracts and Options

9. 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
1.60 - Because you can buy more dollars
downward slope
weakens
Currency in which the entity reports results externally

10. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strategy and financial policy
liquidity and cash
AUD

11. The ticker symbol for the Chinese Yuan
BS account balances
fx forward
6 weeks prior to Q/E
CNY

12. What dictates minimum and maximum hedge percentages?
FX policy
What is happening
allow FX rate
Used to hedge against variability in expected future cash flows

13. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
average rate
valuable

14. What is Fair Value hedge program used for?
FX policy
Oracle
Forward contracts and Options
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

15. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
BRL
3 -210 billion (3 trillion)
allow FX rate

16. What are the four major FX accounting guidances?
currency options and forward
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
30%
5%

17. 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
300 billion
Indirect quote
3 -210 billion (3 trillion)

18. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
BRL
Government regulation and cost of hedging
1.40 - Because I would be able to buy more euros
an estimate of aggregate rate

19. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Forward Points
P&L activity
Spot price
three digit ticker symbol ex: USD - United States Dollar

20. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
P&L activity
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
less
13%

21. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Indirect quote
3 -210 billion (3 trillion)
valuable
1 share = 1/3 case

22. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
actual weighted average contract rate
financial risk
functional currency

23. Hedging instrument used in Fair Value Hedge program is...
financial risk
fx forward
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
exchange one currency for another

24. What is the trading in volume for FX?
3 -210 billion (3 trillion)
End of Period Rate (SCO-4 rate)
BRL
The currency of the primary economic environment in which the legal entity operates

25. How far in advance do we hedge?
currency options and forward
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
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
15 months in advance - layering on hedges through time

26. The difference in interest rate is referred to as...
Government regulation and cost of hedging
Forward Points
spot price x interest differential
valuable

27. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
lost
Used to hedge against variability in expected future cash flows
Oracle
There are FOUR

28. 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?
P&L activity
Currency in which the entity reports results externally
currency options and forward
1.40 - Because I would be able to buy more euros

29. USD-JPY account for ____ of trading FX volume
300 billion
Currency of the respective operating unit's country
13%
Spot price

30. What is Functional Currency?
adverse fluctuations
Indirect quote
The currency of the primary economic environment in which the legal entity operates
foreign exchange forward contract

31. When is hedge rate published?
6 weeks prior to Q/E
strengthens
This means 1 Euro measured against US Dollars is worth $1.40
value

32. GBP-USD account for ____ of trading FX volume
Forward Points
12%
13%
financial strategy and financial policy

33. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The difference between hedge rate and final effective hedge rate
exchange one currency for another
value

34. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
BS account balances
adverse fluctuations

35. How many currencies use Direct method of quoting?
downward slope
value
90%
There are FOUR

36. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
actual weighted average contract rate
financial strength
12%

37. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
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
exchange one currency for another
financial strength

38. Forward points multiply the exchange rate by the...
Pound strengthens
interest rate differential
is getting bigger
more

39. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
AUD
strengthens
1.60 - Because you can buy more dollars
P&L activity

40. What rate is used to book daily transactions?
largest - It is open 24 hours a day - except weekends
Treasury Daily Spot Rate
two business days
Mitigates risks by using hedging techniques

41. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
Treasury Daily Spot Rate
financial risk
AUD
exchange one currency for another

42. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
Treasury Daily Spot Rate
The currency of the primary economic environment in which the legal entity operates
Current market price - spot - plus or minus the difference between the interest rates of the two countries

43. How does treasury accomplish its purpose?
90%
value
directly or indirectly
Mitigates risks by using hedging techniques

44. How do you read EUR-USD = 1.40
largest - It is open 24 hours a day - except weekends
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
foreign currency* rate
This means 1 Euro measured against US Dollars is worth $1.40

45. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
90%
Government regulation and cost of hedging
strengthens
SFAS 52

46. 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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
direct
Pound strengthens
1 Case = 2 pizzas

47. US Treasuries is the second highest trading volume accounting for...
Forward contracts and Options
300 billion
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
Forward Points

48. A Spot happens in...
foreign exchange forward contract
1 Case = 2 pizzas
13%
two business days

49. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
Currency in which the entity reports results externally
The currency of the primary economic environment in which the legal entity operates
CNY

50. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
British Pound - Australian Dollar - New Zealand Dollar - Euro
1USD
Currency in which the entity reports results externally
1 Case = 2 pizzas