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. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Treasury Daily Spot Rate
21%
actual weighted average contract rate
strengthens

2. What is the purpose of hedging?
The difference between hedge rate and final effective hedge rate
P&L activity
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
actual weighted average contract rate

3. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
exchange rate
The calculation is the same - but instead of adding forward points you subtract
directly or indirectly

4. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
F&O account 87503
This means 1 Euro measured against US Dollars is worth $1.40
1 unit

5. A Spot happens in...
P&L activity
12%
AUD
two business days

6. What is reporting currency?
actual weighted average contract rate
Currency in which the entity reports results externally
Pound strengthens
5%

7. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
End of Period Rate (SCO-4 rate)
Effective Hedge rate
financial risk

8. 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...
value
Mitigates risks by using hedging techniques
two business days
is getting bigger

9. All other currency trading with USD accounts for ____ of FX volume
BS account balances
1 Case = 2 pizzas
21%
financial risk

10. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
strengthens
Spot price
Currency of the respective operating unit's country

11. The offset of revaluation is recorded to...
F&O account 87503
spot price x interest differential
directly or indirectly
China - Malaysia - Colombia - Chile - Argentina

12. What is currency Translation?

13. How far in advance do we hedge?
30%
The calculation is the same - but instead of adding forward points you subtract
15 months in advance - layering on hedges through time
downward slope

14. Hedging instrument used in cash flow program is...
1.40 - Because I would be able to buy more euros
average rate
currency options and forward
exchange rate

15. What rate is used on the P&L?
weakens
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
more

16. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Forward contracts and Options
adverse fluctuations
6 weeks prior to Q/E
12%

17. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
exchange one currency for another
Current market price - spot - plus or minus the difference between the interest rates of the two countries
less
Spot price

18. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
weakens
3 business days and beyond
1 Case = 2 pizzas

19. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
Mitigates risks by using hedging techniques
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
exchange one currency for another

20. Direct quote- _____________=USD
foreign currency* rate
actual weighted average contract rate
21%
Currency in which the entity reports results externally

21. The difference in interest rate is referred to as...
SFAS 52
There are FOUR
Forward Points
This means 1 Euro measured against US Dollars is worth $1.40

22. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
allow FX rate
B/S rate
translation

23. When is hedge rate published?
Mitigates risks by using hedging techniques
90%
6 weeks prior to Q/E
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

24. ____________ - foreign currency/rate = USD
financial strategy and financial policy
Indirect quote
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
directly or indirectly

25. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
functional currency
exchange one currency for another
300 billion

26. What are non-monetary accounts?
two business days
300 billion
CNY
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

27. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
5%
Spot price

28. Where are revaluations done?
Oracle
liquidity and cash
1.40 - Because I would be able to buy more euros
MXN - EUR - CHF

29. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
spot price x interest differential
foreign exchange forward contract
SFAS 52
1 share = 1/3 case

30. What is Functional Currency?
China - Malaysia - Colombia - Chile - Argentina
largest - It is open 24 hours a day - except weekends
1.40 - Because I would be able to buy more euros
The currency of the primary economic environment in which the legal entity operates

31. What rate is used on the balance sheet?
valuable
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
financial strength
End of Period Rate (SCO-4 rate)

32. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
exchange rate
two business days
1.60 - Because you can buy more dollars
1 unit

33. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
B/S rate
Used to hedge against variability in expected future cash flows
The currency of the primary economic environment in which the legal entity operates
value

34. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
MXN - EUR - CHF
End of Period Rate (SCO-4 rate)
three digit ticker symbol ex: USD - United States Dollar

35. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
fx forward
Treasury Daily Spot Rate
1 unit

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

37. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
adverse fluctuations
foreign currency* rate
currency options and forward

38. Hedging instrument used in Fair Value Hedge program is...
average rate
90%
fx forward
Used to hedge against variability in expected future cash flows

39. GBP-USD account for ____ of trading FX volume
12%
CNY
valuable
spot price x interest differential

40. What is cash flow used for?
The difference between hedge rate and final effective hedge rate
Used to hedge against variability in expected future cash flows
MXN - EUR - CHF
adverse fluctuations

41. Forward points multiply the exchange rate by the...
direct
interest rate differential
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 share = 1/3 case

42. __________ is used for translation of foreign currency B/S to reporting currency
Oracle
B/S rate
6 weeks prior to Q/E
foreign exchange forward contract

43. 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
Pound strengthens
value
financial strength
F&O account 87503

44. The current market price for any currency pair is referred to as ?
BRL
downward slope
5%
Spot price

45. The Foreign Exchange market is the __________ market in the world
BRL
allow FX rate
largest - It is open 24 hours a day - except weekends
valuable

46. What is Revaluation?

47. US Treasuries is the second highest trading volume accounting for...
300 billion
valuable
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SEK

48. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1USD
6 weeks prior to Q/E
1.40 - Because I would be able to buy more euros
an estimate of aggregate rate

49. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
financial risk
What is happening
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
BRL

50. What is Fair Value hedge program used for?
Spot price
15 months in advance - layering on hedges through time
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
This means 1 Euro measured against US Dollars is worth $1.40