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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. Australian currency code is...
AUD
exchange rate
an estimate of aggregate rate
21%

2. What is cash flow used for?
Mitigates risks by using hedging techniques
two business days
actual weighted average contract rate
Used to hedge against variability in expected future cash flows

3. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
three digit ticker symbol ex: USD - United States Dollar
functional currency
value
more

4. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
15 months in advance - layering on hedges through time
foreign exchange forward contract
FX policy

5. 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
5%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
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

6. Hedging instrument used in cash flow program is...
SFAS 52
currency options and forward
foreign currency* rate
strengthens

7. What rate is used on the balance sheet?
The currency of the primary economic environment in which the legal entity operates
12%
End of Period Rate (SCO-4 rate)
strengthens

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
Forward Points
three digit ticker symbol ex: USD - United States Dollar
FX policy
downward slope

9. The current market price for any currency pair is referred to as ?
financial strategy and financial policy
End of Period Rate (SCO-4 rate)
Spot price
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

10. 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?
F&O account 87503
1.40 - Because I would be able to buy more euros
average rate
1 Case = 2 pizzas

11. When is hedge rate published?
Government regulation and cost of hedging
British Pound - Australian Dollar - New Zealand Dollar - Euro
12%
6 weeks prior to Q/E

12. How does treasury accomplish its purpose?
1.40 - Because I would be able to buy more euros
30%
Mitigates risks by using hedging techniques
an estimate of aggregate rate

13. A Spot happens in...
two business days
MXN - EUR - CHF
FX policy
SFAS 52

14. What is currency Translation?

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15. What instruments do we use to hedge?
two business days
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Forward contracts and Options
currency options and forward

16. The difference in interest rate is referred to as...
Forward Points
average rate
currency options and forward
What is happening

17. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
Effective Hedge rate
Forward Points
F&O account 87503

18. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
financial strength
13%
1 unit
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

19. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
F&O account 87503
downward slope
is getting bigger

20. What rate is used on the P&L?
Effective Hedge rate
1 Case = 2 pizzas
300 billion
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

21. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
300 billion
The difference between hedge rate and final effective hedge rate
BS account balances
value

22. What are the four major FX accounting guidances?
Indirect quote
APL rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
translation

23. Forward points multiply the exchange rate by the...
is getting bigger
interest rate differential
This means 1 Euro measured against US Dollars is worth $1.40
SFAS 52

24. What is Revaluation?

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25. How far in advance do we hedge?
Currency in which the entity reports results externally
interest rate differential
Indirect quote
15 months in advance - layering on hedges through time

26. What is local currency?

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27. How many currencies use Direct method of quoting?
End of Period Rate (SCO-4 rate)
SFAS 52
Forward contracts and Options
There are FOUR

28. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
1.40 - Because I would be able to buy more euros
average rate
is getting bigger

29. Forward points is equal to...
spot price x interest differential
three digit ticker symbol ex: USD - United States Dollar
is getting bigger
actual weighted average contract rate

30. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
What is happening
allow FX rate
5%
Currency of the respective operating unit's country

31. All other currency trading with USD accounts for ____ of FX volume
21%
The calculation is the same - but instead of adding forward points you subtract
more
Mitigates risks by using hedging techniques

32. Give an example of one way to hedge a price increase in gas prices...
CNY
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
3 -210 billion (3 trillion)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

33. USD-JPY account for ____ of trading FX volume
The difference between hedge rate and final effective hedge rate
13%
1.40 - Because I would be able to buy more euros
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

34. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1 Case = 2 pizzas
CNY
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
an estimate of aggregate rate

35. EUR-USD currency pair accounts for about ____ of all FX volume
foreign exchange forward contract
30%
financial strength
MXN - EUR - CHF

36. How is the hedge rate variance calculated?
financial strength
Mitigates risks by using hedging techniques
financial risk
The difference between hedge rate and final effective hedge rate

37. What is the trading in volume for FX?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Forward Points
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)

38. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
SFAS 52
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Treasury Daily Spot Rate

39. ____________ - foreign currency/rate = USD
300 billion
spot price x interest differential
weakens
Indirect quote

40. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
F&O account 87503
1.60 - Because you can buy more dollars

41. What rate is used to book daily transactions?
interest rate differential
Treasury Daily Spot Rate
exchange one currency for another
300 billion

42. What is Fair Value hedge program used for?
Used to hedge against variability in expected future cash flows
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
allow FX rate
two business days

43. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
Spot price
valuable
The calculation is the same - but instead of adding forward points you subtract
Government regulation and cost of hedging

44. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
3 business days and beyond
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

45. Give some examples of countries where its hard to hedge?
is getting bigger
less
CNY
China - Malaysia - Colombia - Chile - Argentina

46. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
21%
F&O account 87503
APL rate
1.60 - Because you can buy more dollars

47. What dictates minimum and maximum hedge percentages?
financial strength
exchange one currency for another
FX policy
adverse fluctuations

48. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
15 months in advance - layering on hedges through time
adverse fluctuations
Spot price

49. The currency ticker for the Sweden Kroner is?
300 billion
value
SEK
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

50. Treasury is responsible for managing companies funds and determining the firms'...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
financial strategy and financial policy
three digit ticker symbol ex: USD - United States Dollar
liquidity and cash

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Foreign Exchange Essentials

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