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. Where are revaluations done?
more
SEK
Oracle
B/S rate

2. 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
P&L activity
lost
adverse fluctuations

3. B/S rate is used for revaluation of foreign currency transaction to...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Current market price - spot - plus or minus the difference between the interest rates of the two countries
less
functional currency

4. How many currencies use Direct method of quoting?
FX policy
spot price x interest differential
Spot price
There are FOUR

5. How do you read EUR-USD = 1.40
largest - It is open 24 hours a day - except weekends
3 -210 billion (3 trillion)
Used to hedge against variability in expected future cash flows
This means 1 Euro measured against US Dollars is worth $1.40

6. What currencies use Direct method of quoting?
lost
FX policy
AUD
British Pound - Australian Dollar - New Zealand Dollar - Euro

7. What is the ticker symbol for Brazilian Real?
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
BRL
300 billion
financial strategy and financial policy

8. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
financial strategy and financial policy
What is happening
lost

9. Forward points is equal to...
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
two business days
300 billion

10. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
China - Malaysia - Colombia - Chile - Argentina
P&L activity
MXN - EUR - CHF

11. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
12%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Treasury Daily Spot Rate
direct

12. US Treasuries is the second highest trading volume accounting for...
Currency in which the entity reports results externally
P&L activity
300 billion
What is happening

13. GBP-USD account for ____ of trading FX volume
1 unit
12%
downward slope
15 months in advance - layering on hedges through time

14. 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
foreign exchange forward contract
1 unit
China - Malaysia - Colombia - Chile - Argentina

15. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Indirect quote
1 unit
less
liquidity and cash

16. What are monetary accounts?
CNY
two business days
Currency of the respective operating unit's country
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

17. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
5%
Spot price
two business days

18. How does treasury accomplish its purpose?
Mitigates risks by using hedging techniques
actual weighted average contract rate
The currency of the primary economic environment in which the legal entity operates
foreign exchange forward contract

19. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
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
more
Treasury Daily Spot Rate
This means 1 Euro measured against US Dollars is worth $1.40

20. In general EUR-USD is involved in roughly ___ of all FX volume
90%
allow FX rate
Oracle
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

21. The offset of revaluation is recorded to...
financial risk
3 -210 billion (3 trillion)
Mitigates risks by using hedging techniques
F&O account 87503

22. A Spot happens in...
B/S rate
two business days
F&O account 87503
CNY

23. __________ is used for translation of foreign currency B/S to reporting currency
an estimate of aggregate rate
B/S rate
Forward contracts and Options
downward slope

24. The rules for adding or subtracting forward points depend on whether it is quoted...
value
directly or indirectly
weakens
FX policy

25. What rate is used to book daily transactions?
MXN - EUR - CHF
Treasury Daily Spot Rate
The difference between hedge rate and final effective hedge rate
allow FX rate

26. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Indirect quote
Mitigates risks by using hedging techniques
three digit ticker symbol ex: USD - United States Dollar
an estimate of aggregate rate

27. What is the trading in volume for FX?
1 unit
300 billion
3 -210 billion (3 trillion)
3 business days and beyond

28. Australian currency code is...
AUD
value
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
financial risk

29. 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
allow FX rate
CNY
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

30. What is cash flow used for?
Used to hedge against variability in expected future cash flows
1.60 - Because you can buy more dollars
CNY
MXN - EUR - CHF

31. What are the exceptions to the ticker naming convention?
functional currency
MXN - EUR - CHF
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
downward slope

32. The difference in interest rate is referred to as...
Forward Points
allow FX rate
spot price x interest differential
less

33. USD-JPY account for ____ of trading FX volume
13%
Forward Points
foreign exchange forward contract
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

34. 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?
financial risk
21%
What is happening
5%

35. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Government regulation and cost of hedging
1 unit
CNY

36. The Foreign Exchange market is the __________ market in the world
P&L activity
5%
largest - It is open 24 hours a day - except weekends
translation

37. When is hedge rate published?
Forward Points
interest rate differential
liquidity and cash
6 weeks prior to Q/E

38. Give some examples of countries where its hard to hedge?
valuable
China - Malaysia - Colombia - Chile - Argentina
1.40 - Because I would be able to buy more euros
The difference between hedge rate and final effective hedge rate

39. Treasury's role is to identify risk - control to prevent erosion of...
more
APL rate
financial strength
fx forward

40. The ticker symbol for the Chinese Yuan
CNY
direct
Pound strengthens
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

41. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
functional currency
financial risk
The currency of the primary economic environment in which the legal entity operates
adverse fluctuations

42. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
average rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
1.60 - Because you can buy more dollars
lost

43. What is the purpose of hedging?
SFAS 52
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
an estimate of aggregate rate
Effective Hedge rate

44. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
13%

45. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
3 business days and beyond
less
There are FOUR

46. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
lost
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
P&L activity

47. What are the four major FX accounting guidances?
The difference between hedge rate and final effective hedge rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
B/S rate

48. What is reporting currency?
an estimate of aggregate rate
Currency in which the entity reports results externally
more
three digit ticker symbol ex: USD - United States Dollar

49. If 1 pizza = 15 USD then ____ = 1/15 pizza
Spot price
translation
1USD
Indirect quote

50. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Currency in which the entity reports results externally
lost
P&L activity
is getting bigger