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. What rate is used to book daily transactions?
three digit ticker symbol ex: USD - United States Dollar
Used to hedge against variability in expected future cash flows
Treasury Daily Spot Rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

2. 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
foreign exchange forward contract
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Mitigates risks by using hedging techniques

3. Where are revaluations done?
value
Oracle
1USD
foreign exchange forward contract

4. Treasury's role is to identify risk - control to prevent erosion of...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Forward contracts and Options
21%
financial strength

5. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
300 billion
more
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
BS account balances

6. Hedging instrument used in Fair Value Hedge program is...
fx forward
1.60 - Because you can buy more dollars
translation
financial strength

7. All other currency trading with USD accounts for ____ of FX volume
21%
12%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
value

8. EUR-USD currency pair accounts for about ____ of all FX volume
APL rate
FX policy
direct
30%

9. What dictates minimum and maximum hedge percentages?
MXN - EUR - CHF
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
FX policy
weakens

10. Direct quote- _____________=USD
direct
exchange rate
Mitigates risks by using hedging techniques
foreign currency* rate

11. What are monetary accounts?
SEK
currency options and forward
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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

12. How is the hedge rate variance calculated?
3 -210 billion (3 trillion)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The difference between hedge rate and final effective hedge rate
5%

13. 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?
13%
1.40 - Because I would be able to buy more euros
more
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

14. How does treasury accomplish its purpose?
translation
1 Case = 2 pizzas
three digit ticker symbol ex: USD - United States Dollar
Mitigates risks by using hedging techniques

15. How is the price of the forward contract determined?
3 business days and beyond
FX policy
Current market price - spot - plus or minus the difference between the interest rates of the two countries
largest - It is open 24 hours a day - except weekends

16. A Spot happens in...
two business days
13%
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
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

17. What is currency Translation?

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18. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
Currency in which the entity reports results externally
financial risk
largest - It is open 24 hours a day - except weekends

19. GBP-USD account for ____ of trading FX volume
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
direct
12%
This means 1 Euro measured against US Dollars is worth $1.40

20. How many currencies use Direct method of quoting?
F&O account 87503
financial strategy and financial policy
less
There are FOUR

21. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
The difference between hedge rate and final effective hedge rate
90%
adverse fluctuations
foreign exchange forward contract

22. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
exchange one currency for another
Pound strengthens
adverse fluctuations
FX policy

23. What is Revaluation?

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24. Australian currency code is...
AUD
Pound strengthens
liquidity and cash
more

25. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
6 weeks prior to Q/E
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
Effective Hedge rate
value

26. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
is getting bigger
The currency of the primary economic environment in which the legal entity operates
SFAS 52

27. The current market price for any currency pair is referred to as ?
Forward contracts and Options
6 weeks prior to Q/E
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
Spot price

28. What are some of the reason not hedge at all or partially hedge in a few countries?
direct
Government regulation and cost of hedging
SFAS 52
Forward contracts and Options

29. What are the exceptions to the ticker naming convention?
interest rate differential
MXN - EUR - CHF
Indirect quote
financial risk

30. What are non-monetary accounts?
valuable
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
financial strategy and financial policy
The difference between hedge rate and final effective hedge rate

31. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
allow FX rate
FX policy
Currency of the respective operating unit's country
less

32. What rate is used on the P&L?
21%
functional currency
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
3 business days and beyond

33. What is the ticker symbol for Brazilian Real?
BRL
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Forward Points
Mitigates risks by using hedging techniques

34. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
BRL
lost
Currency in which the entity reports results externally
financial risk

35. The offset of revaluation is recorded to...
1USD
F&O account 87503
value
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

36. What is the purpose of hedging?
weakens
300 billion
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

37. Treasury ensures that companies have ____________ to meet its obligations
actual weighted average contract rate
liquidity and cash
Forward Points
21%

38. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
1 share = 1/3 case
foreign exchange forward contract
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
value

39. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
three digit ticker symbol ex: USD - United States Dollar
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Spot price
financial risk

40. Give an example of one way to hedge a price increase in gas prices...
largest - It is open 24 hours a day - except weekends
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
What is happening
FX policy

41. What is Functional Currency?
currency options and forward
Currency of the respective operating unit's country
The currency of the primary economic environment in which the legal entity operates
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

42. Forward points multiply the exchange rate by the...
interest rate differential
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
AUD
The currency of the primary economic environment in which the legal entity operates

43. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
functional currency
lost
directly or indirectly

44. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
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
What is happening
Currency in which the entity reports results externally
weakens

45. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
directly or indirectly
Used to hedge against variability in expected future cash flows
FX policy

46. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
allow FX rate
This means 1 Euro measured against US Dollars is worth $1.40
There are FOUR

47. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
1 Case = 2 pizzas
Spot price
300 billion

48. 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
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.
spot price x interest differential

49. 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
B/S rate
less
300 billion

50. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
AUD
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
exchange one currency for another
1 share = 1/3 case