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 are some of the reason not hedge at all or partially hedge in a few countries?
30%
foreign exchange forward contract
financial strength
Government regulation and cost of hedging

2. Forward points is equal to...
downward slope
spot price x interest differential
BS account balances
financial risk

3. What is the purpose of hedging?
1.40 - Because I would be able to buy more euros
Indirect quote
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
P&L activity

4. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
5%
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

5. Treasury ensures that companies have ____________ to meet its obligations
directly or indirectly
liquidity and cash
End of Period Rate (SCO-4 rate)
foreign currency* rate

6. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
BRL
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
300 billion

7. What are non-monetary accounts?
Government regulation and cost of hedging
translation
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
an estimate of aggregate rate

8. 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
liquidity and cash
interest rate differential
downward slope
The difference between hedge rate and final effective hedge rate

9. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
interest rate differential
functional currency
Forward contracts and Options
more

10. Treasury's role is to identify risk - control to prevent erosion of...
FX policy
financial strength
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
largest - It is open 24 hours a day - except weekends

11. 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
Currency in which the entity reports results externally
Pound strengthens
FX policy
an estimate of aggregate rate

12. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
average rate
1 share = 1/3 case
two business days
The difference between hedge rate and final effective hedge rate

13. Australian currency code is...
SFAS 52
AUD
downward slope
Currency in which the entity reports results externally

14. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
liquidity and cash
What is happening
15 months in advance - layering on hedges through time
direct

15. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Effective Hedge rate
Forward Points
weakens
BRL

16. Forward points multiply the exchange rate by the...
Spot price
interest rate differential
The currency of the primary economic environment in which the legal entity operates
1 unit

17. If 1 pizza = 15 USD then ____ = 1/15 pizza
adverse fluctuations
F&O account 87503
Forward Points
1USD

18. 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
BRL
6 weeks prior to Q/E
1 share = 1/3 case

19. An ___________ expresses the value of one currency relative to another
two business days
Pound strengthens
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
exchange rate

20. What currencies use Direct method of quoting?
The difference between hedge rate and final effective hedge rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
British Pound - Australian Dollar - New Zealand Dollar - Euro
B/S rate

21. What is Revaluation?

22. The currency ticker for the Sweden Kroner is?
SEK
The difference between hedge rate and final effective hedge rate
F&O account 87503
strengthens

23. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
The calculation is the same - but instead of adding forward points you subtract
three digit ticker symbol ex: USD - United States Dollar
Used to hedge against variability in expected future cash flows
SFAS 52

24. What rate is used on the P&L?
The currency of the primary economic environment in which the legal entity operates
British Pound - Australian Dollar - New Zealand Dollar - Euro
15 months in advance - layering on hedges through time
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

25. How is the hedge rate variance calculated?
direct
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
The difference between hedge rate and final effective hedge rate
15 months in advance - layering on hedges through time

26. When is hedge rate published?
Effective Hedge rate
6 weeks prior to Q/E
average 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

27. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
5%
valuable
What is happening

28. The ticker symbol for the Chinese Yuan
currency options and forward
30%
SEK
CNY

29. EUR-USD currency pair accounts for about ____ of all FX volume
The calculation is the same - but instead of adding forward points you subtract
6 weeks prior to Q/E
Spot price
30%

30. What is cash flow used for?
SEK
Used to hedge against variability in expected future cash flows
value
weakens

31. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
21%
functional currency
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
adverse fluctuations

32. In general EUR-USD is involved in roughly ___ of all FX volume
90%
5%
SFAS 52
exchange one currency for another

33. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
lost
Indirect quote
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 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
Currency in which the entity reports results externally
valuable
1 Case = 2 pizzas
Used to hedge against variability in expected future cash flows

35. 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
1.60 - Because you can buy more dollars
allow FX rate
Mitigates risks by using hedging techniques
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

36. What dictates minimum and maximum hedge percentages?
more
direct
value
FX policy

37. How does treasury accomplish its purpose?
Government regulation and cost of hedging
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strategy and financial policy
Mitigates risks by using hedging techniques

38. Hedging instrument used in cash flow program is...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1 Case = 2 pizzas
currency options and forward
spot price x interest differential

39. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 unit
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
F&O account 87503

40. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Used to hedge against variability in expected future cash flows
FX policy
Effective Hedge rate
B/S rate

41. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
financial strategy and financial policy
valuable
allow FX rate
Used to hedge against variability in expected future cash flows

42. Give some examples of countries where its hard to hedge?
actual weighted average contract rate
China - Malaysia - Colombia - Chile - Argentina
1USD
Current market price - spot - plus or minus the difference between the interest rates of the two countries

43. What rate is used to book daily transactions?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
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
Treasury Daily Spot Rate
average rate

44. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
largest - It is open 24 hours a day - except weekends
Effective Hedge rate
P&L activity
Pound strengthens

45. 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
30%
currency options and forward
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

46. The offset of revaluation is recorded to...
1 Case = 2 pizzas
exchange rate
1.60 - Because you can buy more dollars
F&O account 87503

47. What does it mean to hedge?
Pound strengthens
1.60 - Because you can buy more dollars
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
21%

48. What is the trading in volume for FX?
three digit ticker symbol ex: USD - United States Dollar
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

49. Hedging instrument used in Fair Value Hedge program is...
fx forward
more
foreign currency* rate
financial strategy and financial policy

50. The timing of when we execute hedges drastically impacts the ____________ we achieve
Used to hedge against variability in expected future cash flows
Effective Hedge rate
average rate
more