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. The current market price for any currency pair is referred to as ?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Oracle
SEK
Spot price

2. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
three digit ticker symbol ex: USD - United States Dollar
1 Case = 2 pizzas
3 -210 billion (3 trillion)

3. What is reporting currency?
weakens
fx forward
liquidity and cash
Currency in which the entity reports results externally

4. How is the price of the forward contract determined?
functional currency
Current market price - spot - plus or minus the difference between the interest rates of the two countries
value
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

5. What rate is used to book daily transactions?
3 -210 billion (3 trillion)
Treasury Daily Spot Rate
an estimate of aggregate rate
is getting bigger

6. Direct quote- _____________=USD
Used to hedge against variability in expected future cash flows
B/S rate
is getting bigger
foreign currency* rate

7. What are the four major FX accounting guidances?
5%
Effective Hedge rate
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

8. An ___________ expresses the value of one currency relative to another
30%
currency options and forward
three digit ticker symbol ex: USD - United States Dollar
exchange rate

9. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
interest rate differential
two business days
foreign exchange forward contract

10. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
actual weighted average contract rate
weakens
CNY
FX policy

11. What rate is used on the P&L?
interest rate differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
strengthens
Effective Hedge rate

12. What is currency Translation?

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13. What is the trading in volume for FX?
15 months in advance - layering on hedges through time
valuable
3 -210 billion (3 trillion)
1.60 - Because you can buy more dollars

14. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
90%
British Pound - Australian Dollar - New Zealand Dollar - Euro
direct
value

15. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
CNY
Oracle
directly or indirectly
strengthens

16. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
financial strength
spot price x interest differential
exchange rate
lost

17. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
value
directly or indirectly
1 Case = 2 pizzas
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

18. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
SFAS 52
1.60 - Because you can buy more dollars
Forward Points
BRL

19. 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?
allow FX rate
two business days
5%
value

20. What is the ticker symbol for Brazilian Real?
30%
Treasury Daily Spot Rate
BRL
foreign currency* rate

21. Treasury ensures that companies have ____________ to meet its obligations
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
spot price x interest differential
This means 1 Euro measured against US Dollars is worth $1.40
liquidity and cash

22. The rules for adding or subtracting forward points depend on whether it is quoted...
China - Malaysia - Colombia - Chile - Argentina
directly or indirectly
3 business days and beyond
Pound strengthens

23. Where are revaluations done?
Currency in which the entity reports results externally
BS account balances
SEK
Oracle

24. What are the exceptions to the ticker naming convention?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
downward slope
MXN - EUR - CHF
largest - It is open 24 hours a day - except weekends

25. What is local currency?

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26. What are non-monetary accounts?
Currency in which the entity reports results externally
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
two business days
21%

27. What is Functional Currency?
spot price x interest differential
The calculation is the same - but instead of adding forward points you subtract
The currency of the primary economic environment in which the legal entity operates
3 business days and beyond

28. 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
allow FX rate
financial strength
exchange rate
What is happening

29. Give some examples of countries where its hard to hedge?
actual weighted average contract rate
Currency of the respective operating unit's country
direct
China - Malaysia - Colombia - Chile - Argentina

30. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
Oracle
3 business days and beyond
BRL

31. What is Fair Value hedge program used for?
1USD
exchange rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 Case = 2 pizzas

32. 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
APL rate
Pound strengthens
BS account balances
fx forward

33. 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
Treasury Daily Spot Rate
B/S rate
liquidity and cash

34. What is the purpose of hedging?
exchange one currency for another
SEK
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
6 weeks prior to Q/E

35. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
largest - It is open 24 hours a day - except weekends
What is happening
1 share = 1/3 case
exchange one currency for another

36. A Spot happens in...
two business days
1.60 - Because you can buy more dollars
three digit ticker symbol ex: USD - United States Dollar
fx forward

37. Hedging instrument used in cash flow program is...
Treasury Daily Spot Rate
There are FOUR
1 Case = 2 pizzas
currency options and forward

38. How does treasury accomplish its purpose?
This means 1 Euro measured against US Dollars is worth $1.40
Spot price
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Mitigates risks by using hedging techniques

39. The difference in interest rate is referred to as...
exchange rate
BS account balances
The calculation is the same - but instead of adding forward points you subtract
Forward Points

40. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
valuable
P&L activity
APL rate
direct

41. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
British Pound - Australian Dollar - New Zealand Dollar - Euro
financial risk
SFAS 52
less

42. When is hedge rate published?
currency options and forward
6 weeks prior to Q/E
Used to hedge against variability in expected future cash flows
two business days

43. GBP-USD account for ____ of trading FX volume
1 share = 1/3 case
directly or indirectly
translation
12%

44. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
End of Period Rate (SCO-4 rate)
SEK
value

45. A forward happens in...
weakens
3 business days and beyond
translation
SFAS 52

46. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
actual weighted average contract rate
liquidity and cash
exchange one currency for another
directly or indirectly

47. In general EUR-USD is involved in roughly ___ of all FX volume
average rate
SEK
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
90%

48. What are monetary accounts?
Oracle
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Forward contracts and Options
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

49. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
interest rate differential
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
China - Malaysia - Colombia - Chile - Argentina

50. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
P&L activity
direct
adverse fluctuations