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. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
SEK
fx forward
three digit ticker symbol ex: USD - United States Dollar

2. Give an example of one way to hedge a price increase in gas prices...
12%
allow FX rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
foreign currency* rate

3. Australian currency code is...
Forward contracts and Options
AUD
6 weeks prior to Q/E
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

4. Hedging instrument used in Fair Value Hedge program is...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Spot price
Used to hedge against variability in expected future cash flows
fx forward

5. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
fx forward
Spot price
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

6. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Currency in which the entity reports results externally
Effective Hedge rate
more
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

7. Treasury ensures that companies have ____________ to meet its obligations
AUD
fx forward
liquidity and cash
spot price x interest differential

8. ____________ - foreign currency/rate = USD
foreign currency* rate
Oracle
Indirect quote
CNY

9. The difference in interest rate is referred to as...
allow FX rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
direct
Forward Points

10. 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...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
AUD
is getting bigger
1 share = 1/3 case

11. 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?
5%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
CNY

12. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
foreign currency* rate
an estimate of aggregate rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

13. An ___________ expresses the value of one currency relative to another
1.60 - Because you can buy more dollars
exchange rate
average rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

14. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
The difference between hedge rate and final effective hedge rate
300 billion
P&L activity
CNY

15. If 1 pizza = 15 USD then ____ = 1/15 pizza
There are FOUR
exchange one currency for another
1USD
lost

16. What is Functional Currency?
SEK
The currency of the primary economic environment in which the legal entity operates
Currency in which the entity reports results externally
financial risk

17. 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
valuable
exchange rate
1 unit

18. What dictates minimum and maximum hedge percentages?
currency options and forward
FX policy
functional currency
translation

19. ____________ is used for translation of foreign currency P&L to Reporting currency?
valuable
Spot price
APL rate
Used to hedge against variability in expected future cash flows

20. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Forward Points
less
3 -210 billion (3 trillion)
more

21. Revaluation can be hedged - while ___________ cannot be hedged
AUD
translation
lost
less

22. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
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
value
3 -210 billion (3 trillion)

23. The timing of when we execute hedges drastically impacts the ____________ we achieve
SEK
average rate
actual weighted average contract rate
largest - It is open 24 hours a day - except weekends

24. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Indirect quote
direct
15 months in advance - layering on hedges through time
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

25. Where are revaluations done?
Oracle
End of Period Rate (SCO-4 rate)
30%
China - Malaysia - Colombia - Chile - Argentina

26. What are monetary accounts?
1.60 - Because you can buy more dollars
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
exchange one currency for another
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

27. A Spot happens in...
AUD
average rate
Treasury Daily Spot Rate
two business days

28. What is local currency?

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29. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
allow FX rate
SEK
fx forward

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

31. __________ is used for translation of foreign currency B/S to reporting currency
21%
lost
B/S rate
Spot price

32. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Pound strengthens
B/S rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
strengthens

33. Give some examples of countries where its hard to hedge?
SFAS 52
China - Malaysia - Colombia - Chile - Argentina
Indirect quote
British Pound - Australian Dollar - New Zealand Dollar - Euro

34. In general EUR-USD is involved in roughly ___ of all FX volume
13%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
90%
3 -210 billion (3 trillion)

35. Treasury is responsible for banking requirements - funding for the business and managing...
1 share = 1/3 case
financial risk
BRL
foreign exchange forward contract

36. What rate is used on the P&L?
three digit ticker symbol ex: USD - United States Dollar
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
spot price x interest differential
Effective Hedge rate

37. What are the exceptions to the ticker naming convention?
Used to hedge against variability in expected future cash flows
MXN - EUR - CHF
1.60 - Because you can buy more dollars
financial risk

38. Forward points multiply the exchange rate by the...
SEK
functional currency
interest rate differential
1USD

39. What instruments do we use to hedge?
12%
largest - It is open 24 hours a day - except weekends
Forward contracts and Options
downward slope

40. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
3 business days and beyond
21%
1 unit
1 Case = 2 pizzas

41. What is Fair Value hedge program used for?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
3 business days and beyond
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Pound strengthens

42. Direct quote- _____________=USD
foreign currency* rate
End of Period Rate (SCO-4 rate)
MXN - EUR - CHF
1 unit

43. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
strengthens
The calculation is the same - but instead of adding forward points you subtract
SFAS 52
What is happening

44. Forward points is equal to...
spot price x interest differential
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
is getting bigger
CNY

45. The currency ticker for the Sweden Kroner is?
three digit ticker symbol ex: USD - United States Dollar
more
SFAS 52
SEK

46. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
Government regulation and cost of hedging
Forward contracts and Options
fx forward

47. 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
SEK
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
15 months in advance - layering on hedges through time
allow FX rate

48. 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?
1.40 - Because I would be able to buy more euros
financial strength
Treasury Daily Spot Rate
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

49. The rules for adding or subtracting forward points depend on whether it is quoted...
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Currency of the respective operating unit's country
F&O account 87503
directly or indirectly

50. 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
functional currency
F&O account 87503
1.40 - Because I would be able to buy more euros
Pound strengthens