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. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
P&L activity
allow FX rate
lost

2. In general EUR-USD is involved in roughly ___ of all FX volume
Current market price - spot - plus or minus the difference between the interest rates of the two countries
90%
FX policy
The calculation is the same - but instead of adding forward points you subtract

3. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Pound strengthens
two business days
APL rate
an estimate of aggregate rate

4. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
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
lost
spot price x interest differential

5. Hedging instrument used in cash flow program is...
SEK
weakens
APL rate
currency options and forward

6. Revaluation can be hedged - while ___________ cannot be hedged
3 business days and beyond
British Pound - Australian Dollar - New Zealand Dollar - Euro
translation
1USD

7. What is Revaluation?

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8. 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
fx forward
The difference between hedge rate and final effective hedge rate
interest rate differential

9. Australian currency code is...
3 business days and beyond
21%
AUD
Pound strengthens

10. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
British Pound - Australian Dollar - New Zealand Dollar - Euro
largest - It is open 24 hours a day - except weekends
1 unit
3 business days and beyond

11. What does it mean to hedge?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SFAS 52
average rate
foreign currency* rate

12. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
interest rate differential
adverse fluctuations
Current market price - spot - plus or minus the difference between the interest rates of the two countries
300 billion

13. A forward happens in...
1 unit
Forward contracts and Options
3 business days and beyond
Treasury Daily Spot Rate

14. What is the ticker symbol for Brazilian Real?
The calculation is the same - but instead of adding forward points you subtract
30%
BRL
functional currency

15. What is the purpose of hedging?
valuable
APL rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1 share = 1/3 case

16. How do you read EUR-USD = 1.40
CNY
This means 1 Euro measured against US Dollars is worth $1.40
foreign exchange forward contract
strengthens

17. The difference in interest rate is referred to as...
3 business days and beyond
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
exchange rate
Forward Points

18. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
13%
21%
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates

19. The Foreign Exchange market is the __________ market in the world
less
largest - It is open 24 hours a day - except weekends
Forward Points
1.40 - Because I would be able to buy more euros

20. Give an example of one way to hedge a price increase in gas prices...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1USD
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
MXN - EUR - CHF

21. The currency ticker for the Sweden Kroner is?
What is happening
strengthens
SEK
weakens

22. What would happen if the US interest rate was bigger than Mexico?
1.40 - Because I would be able to buy more euros
The calculation is the same - but instead of adding forward points you subtract
F&O account 87503
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

23. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
3 business days and beyond
China - Malaysia - Colombia - Chile - Argentina
three digit ticker symbol ex: USD - United States Dollar

24. What dictates minimum and maximum hedge percentages?
12%
1.60 - Because you can buy more dollars
Effective Hedge rate
FX policy

25. All other currency trading with USD accounts for ____ of FX volume
British Pound - Australian Dollar - New Zealand Dollar - Euro
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
21%
Treasury Daily Spot Rate

26. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 share = 1/3 case
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1 Case = 2 pizzas
3 -210 billion (3 trillion)

27. ____________ - foreign currency/rate = USD
Indirect quote
currency options and forward
Mitigates risks by using hedging techniques
BS account balances

28. What rate is used on the P&L?
1USD
Treasury Daily Spot Rate
Government regulation and cost of hedging
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

29. What rate is used to book daily transactions?
1 share = 1/3 case
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
financial strength
Treasury Daily Spot Rate

30. Hedging instrument used in Fair Value Hedge program is...
liquidity and cash
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
fx forward
Spot price

31. US Treasuries is the second highest trading volume accounting for...
Currency of the respective operating unit's country
P&L activity
300 billion
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

32. How does treasury accomplish its purpose?
BS account balances
Indirect quote
Currency in which the entity reports results externally
Mitigates risks by using hedging techniques

33. 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
less
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Pound strengthens
foreign exchange forward contract

34. 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
weakens
downward slope
30%
The calculation is the same - but instead of adding forward points you subtract

35. What is Fair Value hedge program used for?
Indirect quote
B/S rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
interest rate differential

36. GBP-USD account for ____ of trading FX volume
AUD
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
12%
1 unit

37. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
fx forward
SFAS 52
actual weighted average contract rate

38. How is the hedge rate variance calculated?
actual weighted average contract rate
1.40 - Because I would be able to buy more euros
interest rate differential
The difference between hedge rate and final effective hedge rate

39. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
What is happening
three digit ticker symbol ex: USD - United States Dollar
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
liquidity and cash

40. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
APL rate
three digit ticker symbol ex: USD - United States Dollar
FX policy

41. How many currencies use Direct method of quoting?
BS account balances
There are FOUR
average rate
1 Case = 2 pizzas

42. Forward points multiply the exchange rate by the...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
more
APL rate
interest rate differential

43. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
less
21%

44. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
AUD
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
SFAS 52
interest rate differential

45. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
average rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
There are FOUR
actual weighted average contract rate

46. What is the trading in volume for FX?
3 -210 billion (3 trillion)
1 share = 1/3 case
is getting bigger
two business days

47. Direct quote- _____________=USD
is getting bigger
B/S rate
foreign currency* rate
Used to hedge against variability in expected future cash flows

48. B/S rate is used for revaluation of foreign currency transaction to...
fx forward
foreign currency* rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
functional currency

49. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
SFAS 52
financial strength
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

50. The timing of when we execute hedges drastically impacts the ____________ we achieve
90%
average rate
interest rate differential
AUD