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. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
valuable
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

2. 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
downward slope
British Pound - Australian Dollar - New Zealand Dollar - Euro
strengthens
Mitigates risks by using hedging techniques

3. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
exchange rate
largest - It is open 24 hours a day - except weekends
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

4. Where are revaluations done?
MXN - EUR - CHF
Oracle
End of Period Rate (SCO-4 rate)
three digit ticker symbol ex: USD - United States Dollar

5. All other currency trading with USD accounts for ____ of FX volume
5%
Effective Hedge rate
CNY
21%

6. __________ is used for translation of foreign currency B/S to reporting currency
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
3 business days and beyond
B/S rate
liquidity and cash

7. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
30%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
APL rate

8. ____________ should be denominated in the currency they will either be paid or received in...
fx forward
The calculation is the same - but instead of adding forward points you subtract
BS account balances
two business days

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?
15 months in advance - layering on hedges through time
direct
more
1.40 - Because I would be able to buy more euros

10. ____________ - foreign currency/rate = USD
Indirect quote
B/S rate
Spot price
three digit ticker symbol ex: USD - United States Dollar

11. What is the purpose of hedging?
The calculation is the same - but instead of adding forward points you subtract
FX policy
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

12. What is cash flow used for?
Forward contracts and Options
30%
more
Used to hedge against variability in expected future cash flows

13. Treasury is responsible for banking requirements - funding for the business and managing...
Forward contracts and Options
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
financial risk
British Pound - Australian Dollar - New Zealand Dollar - Euro

14. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
30%
5%
1 share = 1/3 case

15. How far in advance do we hedge?
Used to hedge against variability in expected future cash flows
direct
15 months in advance - layering on hedges through time
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

16. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
30%
What is happening
The currency of the primary economic environment in which the legal entity operates
CNY

17. Revaluation can be hedged - while ___________ cannot be hedged
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
downward slope
strengthens
translation

18. What are the four major FX accounting guidances?
currency options and forward
spot price x interest differential
valuable
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

19. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
value
6 weeks prior to Q/E
30%
1 share = 1/3 case

20. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
direct
strengthens
fx forward
1 share = 1/3 case

21. How many currencies use Direct method of quoting?
foreign currency* rate
three digit ticker symbol ex: USD - United States Dollar
adverse fluctuations
There are FOUR

22. What is reporting currency?
Effective Hedge 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
less
Currency in which the entity reports results externally

23. 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
CNY
Pound strengthens
foreign currency* rate
1.60 - Because you can buy more dollars

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?
less
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
5%
90%

25. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
The calculation is the same - but instead of adding forward points you subtract
more
liquidity and cash
value

26. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
APL rate
P&L activity
SEK
less

27. Hedging instrument used in Fair Value Hedge program is...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
fx forward
5%

28. What is the ticker symbol for Brazilian Real?
BRL
fx forward
Effective Hedge rate
CNY

29. What is the trading in volume for FX?
3 -210 billion (3 trillion)
The calculation is the same - but instead of adding forward points you subtract
AUD
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

30. US Treasuries is the second highest trading volume accounting for...
300 billion
15 months in advance - layering on hedges through time
Pound strengthens
average rate

31. ____________ is used for translation of foreign currency P&L to Reporting currency?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1.60 - Because you can buy more dollars
Currency in which the entity reports results externally
APL rate

32. EUR-USD currency pair accounts for about ____ of all FX volume
currency options and forward
APL rate
30%
F&O account 87503

33. The timing of when we execute hedges drastically impacts the ____________ we achieve
currency options and forward
Pound strengthens
average rate
AUD

34. An ___________ expresses the value of one currency relative to another
exchange rate
weakens
1.40 - Because I would be able to buy more euros
1USD

35. Australian currency code is...
MXN - EUR - CHF
P&L activity
AUD
functional currency

36. Treasury ensures that companies have ____________ to meet its obligations
90%
liquidity and cash
Treasury Daily Spot Rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

37. Give an example of one way to hedge a price increase in gas prices...
3 -210 billion (3 trillion)
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
CNY
Mitigates risks by using hedging techniques

38. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
currency options and forward
Forward contracts and Options
1USD

39. A forward happens in...
3 business days and beyond
valuable
13%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

40. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
spot price x interest differential
direct
Treasury Daily Spot Rate
1.40 - Because I would be able to buy more euros

41. How is the hedge rate variance calculated?
an estimate of aggregate rate
APL rate
The difference between hedge rate and final effective hedge rate
15 months in advance - layering on hedges through time

42. What instruments do we use to hedge?
CNY
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Forward contracts and Options
FX policy

43. A Spot happens in...
two business days
three digit ticker symbol ex: USD - United States Dollar
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
largest - It is open 24 hours a day - except weekends

44. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
translation
an estimate of aggregate rate
APL rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

45. What is currency Translation?

46. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
Spot price
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
3 -210 billion (3 trillion)

47. Forward points is equal to...
spot price x interest differential
12%
interest rate differential
This means 1 Euro measured against US Dollars is worth $1.40

48. What are non-monetary accounts?
21%
interest rate differential
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
F&O account 87503

49. The current market price for any currency pair is referred to as ?
What is happening
There are FOUR
90%
Spot price

50. The difference in interest rate is referred to as...
Pound strengthens
Forward Points
APL rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing