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. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
interest rate differential
spot price x interest differential
Currency of the respective operating unit's country

2. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
actual weighted average contract rate
The currency of the primary economic environment in which the legal entity operates
functional currency

3. 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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
allow FX rate
less
more

4. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
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
SFAS 52
Mitigates risks by using hedging techniques
allow FX rate

5. What is the trading in volume for FX?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
6 weeks prior to Q/E
financial strength
3 -210 billion (3 trillion)

6. The timing of when we execute hedges drastically impacts the ____________ we achieve
lost
SFAS 52
average rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

7. 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?
Currency in which the entity reports results externally
1.40 - Because I would be able to buy more euros
21%
B/S rate

8. How far in advance do we hedge?
15 months in advance - layering on hedges through time
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
F&O account 87503
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

9. What are the four major FX accounting guidances?
lost
downward slope
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

10. What are some of the reason not hedge at all or partially hedge in a few countries?
actual weighted average contract rate
BRL
Government regulation and cost of hedging
average rate

11. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
financial strategy and financial policy
financial risk
direct
13%

12. The difference in interest rate is referred to as...
is getting bigger
Forward Points
F&O account 87503
value

13. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
translation
lost
fx forward
British Pound - Australian Dollar - New Zealand Dollar - Euro

14. EUR-USD currency pair accounts for about ____ of all FX volume
Spot price
3 -210 billion (3 trillion)
strengthens
30%

15. What is the ticker symbol for Brazilian Real?
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro
Spot price
What is happening

16. How is the hedge rate variance calculated?
average rate
The difference between hedge rate and final effective hedge rate
functional currency
valuable

17. Hedging instrument used in Fair Value Hedge program is...
fx forward
P&L activity
Current market price - spot - plus or minus the difference between the interest rates of the two countries
downward slope

18. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
largest - It is open 24 hours a day - except weekends
foreign currency* rate
This means 1 Euro measured against US Dollars is worth $1.40

19. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
CNY
largest - It is open 24 hours a day - except weekends
Forward Points
What is happening

20. What is local currency?

21. What is currency Translation?

22. Give some examples of countries where its hard to hedge?
financial risk
China - Malaysia - Colombia - Chile - Argentina
Indirect quote
currency options and forward

23. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
foreign exchange forward contract
three digit ticker symbol ex: USD - United States Dollar
FX policy
directly or indirectly

24. Where are revaluations done?
This means 1 Euro measured against US Dollars is worth $1.40
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
downward slope
Oracle

25. How many currencies use Direct method of quoting?
There are FOUR
SEK
15 months in advance - layering on hedges through time
China - Malaysia - Colombia - Chile - Argentina

26. What rate is used on the balance sheet?
valuable
1 share = 1/3 case
End of Period Rate (SCO-4 rate)
Current market price - spot - plus or minus the difference between the interest rates of the two countries

27. What is Functional Currency?
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
FX policy
The currency of the primary economic environment in which the legal entity operates

28. Revaluation can be hedged - while ___________ cannot be hedged
The calculation is the same - but instead of adding forward points you subtract
is getting bigger
largest - It is open 24 hours a day - except weekends
translation

29. 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
currency options and forward
Treasury Daily Spot Rate
downward slope
Forward contracts and Options

30. What is the purpose of hedging?
strengthens
largest - It is open 24 hours a day - except weekends
There are FOUR
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

31. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
actual weighted average contract rate
F&O account 87503
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates

32. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
financial risk
B/S rate
1 unit
downward slope

33. 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
less
Spot price
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

34. What dictates minimum and maximum hedge percentages?
Forward contracts and Options
FX policy
13%
Used to hedge against variability in expected future cash flows

35. The offset of revaluation is recorded to...
MXN - EUR - CHF
F&O account 87503
This means 1 Euro measured against US Dollars is worth $1.40
BS account balances

36. Give an example of one way to hedge a price increase in gas prices...
300 billion
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Effective Hedge rate
weakens

37. Forward points is equal to...
spot price x interest differential
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1USD
interest rate differential

38. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
21%
1.60 - Because you can buy more dollars
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
China - Malaysia - Colombia - Chile - Argentina

39. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
allow FX rate
Currency in which the entity reports results externally
adverse fluctuations
End of Period Rate (SCO-4 rate)

40. __________ is used for translation of foreign currency B/S to reporting currency
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
B/S rate
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

41. What instruments do we use to hedge?
21%
SEK
Forward contracts and Options
MXN - EUR - CHF

42. 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
China - Malaysia - Colombia - Chile - Argentina
Pound strengthens
spot price x interest differential
MXN - EUR - CHF

43. What rate is used to book daily transactions?
Treasury Daily Spot Rate
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
Used to hedge against variability in expected future cash flows
is getting bigger

44. B/S rate is used for revaluation of foreign currency transaction to...
downward slope
The calculation is the same - but instead of adding forward points you subtract
is getting bigger
functional currency

45. Treasury ensures that companies have ____________ to meet its obligations
Mitigates risks by using hedging techniques
liquidity and cash
directly or indirectly
AUD

46. 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
foreign exchange forward contract
1 share = 1/3 case
an estimate of aggregate rate

47. US Treasuries is the second highest trading volume accounting for...
Used to hedge against variability in expected future cash flows
1USD
300 billion
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

48. What is Revaluation?

49. Direct quote- _____________=USD
foreign currency* rate
SFAS 52
300 billion
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

50. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
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
5%
weakens
more