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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. How do you read EUR-USD = 1.40
1.60 - Because you can buy more dollars
F&O account 87503
This means 1 Euro measured against US Dollars is worth $1.40
strengthens

2. The current market price for any currency pair is referred to as ?
Spot price
Government regulation and cost of hedging
Oracle
Used to hedge against variability in expected future cash flows

3. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
BS account balances
13%
interest rate differential
direct

4. What rate is used on the P&L?
largest - It is open 24 hours a day - except weekends
foreign currency* rate
spot price x interest differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

5. What is Fair Value hedge program used for?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Currency of the respective operating unit's country
21%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

6. 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
13%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
What is happening
allow FX rate

7. What is the purpose of hedging?
value
foreign exchange forward contract
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
allow FX rate

8. What are the exceptions to the ticker naming convention?
The currency of the primary economic environment in which the legal entity operates
AUD
MXN - EUR - CHF
3 -210 billion (3 trillion)

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?
directly or indirectly
1.40 - Because I would be able to buy more euros
Government regulation and cost of hedging
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

10. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
strengthens
SEK
The calculation is the same - but instead of adding forward points you subtract

11. USD-JPY account for ____ of trading FX volume
downward slope
13%
Spot price
liquidity and cash

12. What is the trading in volume for FX?
liquidity and cash
SEK
The calculation is the same - but instead of adding forward points you subtract
3 -210 billion (3 trillion)

13. The difference in interest rate is referred to as...
value
MXN - EUR - CHF
financial strength
Forward Points

14. Hedging instrument used in cash flow program is...
currency options and forward
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
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

15. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
three digit ticker symbol ex: USD - United States Dollar
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
exchange one currency for another

16. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
15 months in advance - layering on hedges through time
P&L activity
weakens
AUD

17. What is cash flow used for?
value
average rate
translation
Used to hedge against variability in expected future cash flows

18. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
12%
three digit ticker symbol ex: USD - United States Dollar
foreign currency* rate
1.60 - Because you can buy more dollars

19. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
is getting bigger
P&L activity
Oracle
APL rate

20. GBP-USD account for ____ of trading FX volume
End of Period Rate (SCO-4 rate)
actual weighted average contract rate
12%
foreign exchange forward contract

21. EUR-USD currency pair accounts for about ____ of all FX volume
30%
foreign exchange forward contract
Used to hedge against variability in expected future cash flows
5%

22. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
30%
strengthens
Currency of the respective operating unit's country
Used to hedge against variability in expected future cash flows

23. What rate is used on the balance sheet?
valuable
End of Period Rate (SCO-4 rate)
Used to hedge against variability in expected future cash flows
1USD

24. Revaluation can be hedged - while ___________ cannot be hedged
lost
translation
6 weeks prior to Q/E
FX policy

25. Treasury is responsible for managing companies funds and determining the firms'...
P&L activity
financial strategy and financial policy
Treasury Daily Spot Rate
less

26. What rate is used to book daily transactions?
Treasury Daily Spot Rate
adverse fluctuations
interest rate differential
more

27. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
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
1USD
value
spot price x interest differential

28. US Treasuries is the second highest trading volume accounting for...
300 billion
functional currency
largest - It is open 24 hours a day - except weekends
Currency of the respective operating unit's country

29. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
liquidity and cash
Forward Points
fx forward

30. Treasury is responsible for banking requirements - funding for the business and managing...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
currency options and forward
translation
financial risk

31. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
3 business days and beyond
1 Case = 2 pizzas
3 -210 billion (3 trillion)

32. What is the ticker symbol for Brazilian Real?
translation
Forward Points
BRL
is getting bigger

33. The offset of revaluation is recorded to...
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
F&O account 87503
largest - It is open 24 hours a day - except weekends

34. When is hedge rate published?
BS account balances
less
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
6 weeks prior to Q/E

35. What is local currency?

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36. What instruments do we use to hedge?
Treasury Daily Spot Rate
End of Period Rate (SCO-4 rate)
Forward contracts and Options
spot price x interest differential

37. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
an estimate of aggregate rate
fx forward
foreign currency* rate

38. Direct quote- _____________=USD
valuable
3 business days and beyond
foreign currency* rate
1.60 - Because you can buy more dollars

39. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
interest rate differential
There are FOUR
Spot price

40. ____________ is used for translation of foreign currency P&L to Reporting currency?
1.60 - Because you can buy more dollars
exchange rate
APL rate
FX policy

41. What does it mean to hedge?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
13%
BRL
P&L activity

42. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
12%
30%
actual weighted average contract rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

43. A Spot happens in...
BS account balances
two business days
currency options and forward
21%

44. Treasury ensures that companies have ____________ to meet its obligations
largest - It is open 24 hours a day - except weekends
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
liquidity and cash
AUD

45. What is Functional Currency?
SEK
The currency of the primary economic environment in which the legal entity operates
Forward Points
three digit ticker symbol ex: USD - United States Dollar

46. How far in advance do we hedge?
15 months in advance - layering on hedges through time
F&O account 87503
BS account balances
B/S rate

47. The currency ticker for the Sweden Kroner is?
SFAS 52
SEK
Indirect quote
The difference between hedge rate and final effective hedge rate

48. Where are revaluations done?
Mitigates risks by using hedging techniques
5%
Oracle
average rate

49. What are some of the reason not hedge at all or partially hedge in a few countries?
What is happening
British Pound - Australian Dollar - New Zealand Dollar - Euro
Government regulation and cost of hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

50. The ticker symbol for the Chinese Yuan
MXN - EUR - CHF
CNY
Pound strengthens
Mitigates risks by using hedging techniques