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. Treasury ensures that companies have ____________ to meet its obligations
interest rate differential
liquidity and cash
1 unit
exchange rate

2. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
B/S rate
3 business days and beyond
exchange one currency for another

3. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

4. What is cash flow used for?
Used to hedge against variability in expected future cash flows
actual weighted average contract rate
Currency of the respective operating unit's country
Treasury Daily Spot Rate

5. The offset of revaluation is recorded to...
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
There are FOUR
MXN - EUR - CHF
F&O account 87503

6. Hedging instrument used in cash flow program is...
1 Case = 2 pizzas
currency options and forward
China - Malaysia - Colombia - Chile - Argentina
BS account balances

7. Where are revaluations done?
Spot price
Oracle
fx forward
currency options and forward

8. Give some examples of countries where its hard to hedge?
strengthens
liquidity and cash
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
China - Malaysia - Colombia - Chile - Argentina

9. USD-JPY account for ____ of trading FX volume
13%
exchange rate
What is happening
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

10. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
valuable
largest - It is open 24 hours a day - except weekends
allow FX rate

11. What is reporting currency?
financial strength
Currency in which the entity reports results externally
13%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

12. What is currency Translation?

Warning: Invalid argument supplied for foreach() in /var/www/html/basicversity.com/show_quiz.php on line 183

13. All other currency trading with USD accounts for ____ of FX volume
valuable
1 Case = 2 pizzas
21%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

14. What rate is used to book daily transactions?
Treasury Daily Spot Rate
13%
There are FOUR
21%

15. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
B/S 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
Currency of the respective operating unit's country

16. How do you read EUR-USD = 1.40
13%
an estimate of aggregate rate
This means 1 Euro measured against US Dollars is worth $1.40
Treasury Daily Spot Rate

17. __________ is used for translation of foreign currency B/S to reporting currency
lost
China - Malaysia - Colombia - Chile - Argentina
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
B/S rate

18. What currencies use Direct method of quoting?
The difference between hedge rate and final effective hedge rate
average rate
3 -210 billion (3 trillion)
British Pound - Australian Dollar - New Zealand Dollar - Euro

19. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
12%
downward slope
exchange rate
1 Case = 2 pizzas

20. US Treasuries is the second highest trading volume accounting for...
What is happening
1.40 - Because I would be able to buy more euros
300 billion
BS account balances

21. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
1 share = 1/3 case
This means 1 Euro measured against US Dollars is worth $1.40
is getting bigger

22. A Spot happens in...
5%
two business days
CNY
1 share = 1/3 case

23. A forward happens in...
Currency in which the entity reports results externally
an estimate of aggregate rate
3 business days and beyond
What is happening

24. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
3 -210 billion (3 trillion)
foreign currency* rate
foreign exchange forward contract

25. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
There are FOUR
This means 1 Euro measured against US Dollars is worth $1.40
weakens
financial strategy and financial policy

26. Australian currency code is...
90%
15 months in advance - layering on hedges through time
1 Case = 2 pizzas
AUD

27. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
allow FX rate
currency options and forward
1 share = 1/3 case
average rate

28. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
currency options and forward
less
BS account balances
Oracle

29. 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...
is getting bigger
three digit ticker symbol ex: USD - United States Dollar
Effective Hedge rate
The difference between hedge rate and final effective hedge rate

30. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
liquidity and cash
APL rate
1.40 - Because I would be able to buy more euros
value

31. B/S rate is used for revaluation of foreign currency transaction to...
currency options and forward
What is happening
1 Case = 2 pizzas
functional currency

32. Forward points multiply the exchange rate by the...
financial risk
interest rate differential
6 weeks prior to Q/E
BRL

33. 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%
Forward contracts and Options
13%
lost

34. What are the exceptions to the ticker naming convention?
P&L activity
MXN - EUR - CHF
financial strength
exchange rate

35. How far in advance do we hedge?
SEK
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
directly or indirectly
15 months in advance - layering on hedges through time

36. What instruments do we use to hedge?
fx forward
Forward contracts and Options
liquidity and cash
The calculation is the same - but instead of adding forward points you subtract

37. What does it mean to hedge?
1 Case = 2 pizzas
Forward Points
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

38. EUR-USD currency pair accounts for about ____ of all FX volume
direct
lost
Oracle
30%

39. Revaluation can be hedged - while ___________ cannot be hedged
B/S rate
This means 1 Euro measured against US Dollars is worth $1.40
translation
1 Case = 2 pizzas

40. 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
F&O account 87503
allow FX rate
Currency of the respective operating unit's country
AUD

41. How does treasury accomplish its purpose?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Mitigates risks by using hedging techniques
lost
directly or indirectly

42. 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
Currency of the respective operating unit's country
translation
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

43. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
interest rate differential
1.60 - Because you can buy more dollars
End of Period Rate (SCO-4 rate)
valuable

44. What is Fair Value hedge program used for?
exchange rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
downward slope
1 share = 1/3 case

45. What are non-monetary accounts?
Forward Points
APL rate
largest - It is open 24 hours a day - except weekends
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

46. Hedging instrument used in Fair Value Hedge program is...
Used to hedge against variability in expected future cash flows
fx forward
5%
13%

47. What dictates minimum and maximum hedge percentages?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
spot price x interest differential
two business days
FX policy

48. What are some of the reason not hedge at all or partially hedge in a few countries?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
less
exchange rate
Government regulation and cost of hedging

49. Give an example of one way to hedge a price increase in gas prices...
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 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
P&L activity
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

50. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
Government regulation and cost of hedging
300 billion
Treasury Daily Spot Rate