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 ticker symbol for the Chinese Yuan
two business days
CNY
financial risk
Spot price

2. What are the exceptions to the ticker naming convention?
is getting bigger
1 Case = 2 pizzas
MXN - EUR - CHF
downward slope

3. How do you read EUR-USD = 1.40
The difference between hedge rate and final effective hedge rate
3 business days and beyond
This means 1 Euro measured against US Dollars is worth $1.40
Mitigates risks by using hedging techniques

4. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
Forward contracts and Options
foreign exchange forward contract
1 unit

5. Give some examples of countries where its hard to hedge?
Currency in which the entity reports results externally
This means 1 Euro measured against US Dollars is worth $1.40
China - Malaysia - Colombia - Chile - Argentina
1 unit

6. 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?
Oracle
3 -210 billion (3 trillion)
1.40 - Because I would be able to buy more euros
MXN - EUR - CHF

7. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
30%
Effective Hedge rate
less
1.60 - Because you can buy more dollars

8. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
valuable
functional currency
adverse fluctuations
P&L activity

9. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Used to hedge against variability in expected future cash flows
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
direct

10. How many currencies use Direct method of quoting?
The currency of the primary economic environment in which the legal entity operates
There are FOUR
FX policy
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

11. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
300 billion
1.60 - Because you can buy more dollars
Used to hedge against variability in expected future cash flows

12. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1USD
Forward Points
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
an estimate of aggregate rate

13. What are monetary accounts?
Currency in which the entity reports results externally
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Government regulation and cost of hedging
exchange rate

14. A forward happens in...
1 Case = 2 pizzas
fx forward
actual weighted average contract rate
3 business days and beyond

15. Treasury is responsible for banking requirements - funding for the business and managing...
strengthens
Mitigates risks by using hedging techniques
financial risk
foreign currency* rate

16. Direct quote- _____________=USD
foreign currency* rate
SEK
actual weighted average contract rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

17. The currency ticker for the Sweden Kroner is?
90%
interest rate differential
SEK
foreign currency* rate

18. What rate is used to book daily transactions?
Effective Hedge rate
Used to hedge against variability in expected future cash flows
Treasury Daily Spot Rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

19. Hedging instrument used in cash flow program is...
90%
foreign currency* rate
currency options and forward
exchange rate

20. What are the four major FX accounting guidances?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
5%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
adverse fluctuations

21. What is currency Translation?

22. What rate is used on the balance sheet?
two business days
End of Period Rate (SCO-4 rate)
BRL
The calculation is the same - but instead of adding forward points you subtract

23. A Spot happens in...
currency options and forward
allow FX rate
two business days
value

24. What is cash flow used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Used to hedge against variability in expected future cash flows
BS account balances
1 Case = 2 pizzas

25. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
actual weighted average contract rate
Spot price
300 billion

26. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
weakens
1.60 - Because you can buy more dollars
average rate

27. What is the purpose of hedging?
actual weighted average contract rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
liquidity and cash
direct

28. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
There are FOUR
5%
value

29. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
MXN - EUR - CHF
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
13%

30. Australian currency code is...
downward slope
exchange rate
foreign currency* rate
AUD

31. What instruments do we use to hedge?
Forward contracts and Options
3 business days and beyond
6 weeks prior to Q/E
Indirect quote

32. What is Functional Currency?
is getting bigger
The currency of the primary economic environment in which the legal entity operates
1 share = 1/3 case
direct

33. Where are revaluations done?
an estimate of aggregate rate
Oracle
two business days
valuable

34. 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...
British Pound - Australian Dollar - New Zealand Dollar - Euro
There are FOUR
1 unit
is getting bigger

35. What is the trading in volume for FX?
3 business days and beyond
This means 1 Euro measured against US Dollars is worth $1.40
3 -210 billion (3 trillion)
30%

36. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
This means 1 Euro measured against US Dollars is worth $1.40
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
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

37. The difference in interest rate is referred to as...
foreign currency* rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
SFAS 52
Forward Points

38. Forward points is equal to...
1 share = 1/3 case
spot price x interest differential
less
two business days

39. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
an estimate of aggregate rate
value
Government regulation and cost of hedging
exchange one currency for another

40. How far in advance do we hedge?
direct
1.60 - Because you can buy more dollars
15 months in advance - layering on hedges through time
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

41. What is Revaluation?

42. What is reporting currency?
directly or indirectly
The difference between hedge rate and final effective hedge rate
Currency in which the entity reports results externally
6 weeks prior to Q/E

43. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
The currency of the primary economic environment in which the legal entity operates
1 share = 1/3 case
What is happening
SFAS 52

44. 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
Government regulation and cost of hedging
15 months in advance - layering on hedges through time
is getting bigger

45. Treasury ensures that companies have ____________ to meet its obligations
functional currency
value
lost
liquidity and cash

46. What rate is used on the P&L?
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
liquidity and cash
End of Period Rate (SCO-4 rate)

47. EUR-USD currency pair accounts for about ____ of all FX volume
is getting bigger
Current market price - spot - plus or minus the difference between the interest rates of the two countries
30%
6 weeks prior to Q/E

48. The offset of revaluation is recorded to...
Currency of the respective operating unit's country
allow FX rate
F&O account 87503
MXN - EUR - CHF

49. The timing of when we execute hedges drastically impacts the ____________ we achieve
5%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
average rate
300 billion

50. How is the hedge rate variance calculated?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Mitigates risks by using hedging techniques
The difference between hedge rate and final effective hedge rate
Forward Points