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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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 is the ticker symbol for Brazilian Real?
MXN - EUR - CHF
Current market price - spot - plus or minus the difference between the interest rates of the two countries
BRL
1 unit

2. What is Fair Value hedge program used for?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
MXN - EUR - CHF
3 -210 billion (3 trillion)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

3. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Pound strengthens
1.40 - Because I would be able to buy more euros
liquidity and cash
adverse fluctuations

4. What rate is used to book daily transactions?
Oracle
Treasury Daily Spot Rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Forward contracts and Options

5. US Treasuries is the second highest trading volume accounting for...
lost
financial risk
300 billion
90%

6. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
BRL
adverse fluctuations
direct
foreign exchange forward contract

7. 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
two business days
P&L activity
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

8. The currency ticker for the Sweden Kroner is?
FX policy
Forward contracts and Options
SEK
Current market price - spot - plus or minus the difference between the interest rates of the two countries

9. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Oracle
lost
Forward contracts and Options
interest rate differential

10. How far in advance do we hedge?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Currency in which the entity reports results externally
15 months in advance - layering on hedges through time
Government regulation and cost of hedging

11. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Mitigates risks by using hedging techniques
1 Case = 2 pizzas

12. Hedging instrument used in Fair Value Hedge program is...
exchange one currency for another
1 Case = 2 pizzas
foreign currency* rate
fx forward

13. Forward points is equal to...
weakens
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The difference between hedge rate and final effective hedge rate
spot price x interest differential

14. ____________ - foreign currency/rate = USD
Indirect quote
1 unit
1 Case = 2 pizzas
SFAS 52

15. The offset of revaluation is recorded to...
Indirect quote
F&O account 87503
1 unit
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

16. How many currencies use Direct method of quoting?
China - Malaysia - Colombia - Chile - Argentina
British Pound - Australian Dollar - New Zealand Dollar - Euro
There are FOUR
strengthens

17. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
1.40 - Because I would be able to buy more euros
strengthens
exchange one currency for another
F&O account 87503

18. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
fx forward
exchange one currency for another
British Pound - Australian Dollar - New Zealand Dollar - Euro

19. What are the exceptions to the ticker naming convention?
strengthens
MXN - EUR - CHF
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

20. 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?
strengthens
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1.40 - Because I would be able to buy more euros
Treasury Daily Spot Rate

21. __________ is used for translation of foreign currency B/S to reporting currency
more
B/S rate
12%
1.40 - Because I would be able to buy more euros

22. What is Functional Currency?
adverse fluctuations
This means 1 Euro measured against US Dollars is worth $1.40
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The currency of the primary economic environment in which the legal entity operates

23. What is the purpose of hedging?
functional currency
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
is getting bigger
foreign exchange forward contract

24. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Treasury Daily Spot Rate
1USD
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

25. What instruments do we use to hedge?
Forward contracts and Options
functional currency
15 months in advance - layering on hedges through time
21%

26. If 1 pizza = 15 USD then ____ = 1/15 pizza
Pound strengthens
Spot price
1USD
financial risk

27. The ticker symbol for the Chinese Yuan
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
FX policy
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
CNY

28. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
F&O account 87503
Forward Points
B/S rate

29. EUR-USD currency pair accounts for about ____ of all FX volume
6 weeks prior to Q/E
21%
30%
1 Case = 2 pizzas

30. What does it mean to hedge?
directly or indirectly
SFAS 52
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
5%

31. A Spot happens in...
Forward Points
lost
two business days
15 months in advance - layering on hedges through time

32. 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...
1.40 - Because I would be able to buy more euros
APL rate
F&O account 87503
is getting bigger

33. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
APL rate
Currency in which the entity reports results externally
BS account balances

34. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
three digit ticker symbol ex: USD - United States Dollar
MXN - EUR - CHF
financial strength
300 billion

35. All other currency trading with USD accounts for ____ of FX volume
21%
weakens
largest - It is open 24 hours a day - except weekends
SFAS 52

36. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
1.40 - Because I would be able to buy more euros
90%
300 billion
P&L activity

37. Australian currency code is...
AUD
5%
China - Malaysia - Colombia - Chile - Argentina
translation

38. What rate is used on the balance sheet?
less
End of Period Rate (SCO-4 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
Effective Hedge rate

39. GBP-USD account for ____ of trading FX volume
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
12%
exchange rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

40. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
AUD
21%
Forward contracts and Options

41. What is currency Translation?

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42. What is local currency?

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43. What are non-monetary accounts?
21%
BRL
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
value

44. B/S rate is used for revaluation of foreign currency transaction to...
This means 1 Euro measured against US Dollars is worth $1.40
functional currency
Spot price
financial strength

45. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
financial risk
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
exchange rate

46. Direct quote- _____________=USD
1USD
largest - It is open 24 hours a day - except weekends
foreign currency* rate
Forward contracts and Options

47. What rate is used on the P&L?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Forward Points
B/S rate
The currency of the primary economic environment in which the legal entity operates

48. How is the hedge rate variance calculated?
3 business days and beyond
The difference between hedge rate and final effective hedge rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
China - Malaysia - Colombia - Chile - Argentina

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

50. When is hedge rate published?
SFAS 52
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
liquidity and cash
6 weeks prior to Q/E

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Foreign Exchange Essentials

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