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. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
12%
1 share = 1/3 case
Indirect quote
1 unit

2. 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 Case = 2 pizzas
15 months in advance - layering on hedges through time
3 -210 billion (3 trillion)
allow FX rate

3. The timing of when we execute hedges drastically impacts the ____________ we achieve
Current market price - spot - plus or minus the difference between the interest rates of the two countries
average rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
foreign currency* rate

4. A forward happens in...
3 business days and beyond
BS account balances
strengthens
fx forward

5. How many currencies use Direct method of quoting?
There are FOUR
Effective Hedge rate
APL rate
13%

6. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
The difference between hedge rate and final effective hedge rate
exchange one currency for another
MXN - EUR - CHF
an estimate of aggregate rate

7. A Spot happens in...
two business days
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1 Case = 2 pizzas
15 months in advance - layering on hedges through time

8. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
21%
This means 1 Euro measured against US Dollars is worth $1.40
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1 Case = 2 pizzas

9. When is hedge rate published?
financial risk
fx forward
1 unit
6 weeks prior to Q/E

10. Treasury's role is to identify risk - control to prevent erosion of...
13%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Pound strengthens
financial strength

11. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
financial risk
15 months in advance - layering on hedges through time
P&L activity
adverse fluctuations

12. ____________ - foreign currency/rate = USD
The calculation is the same - but instead of adding forward points you subtract
End of Period Rate (SCO-4 rate)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Indirect quote

13. In general EUR-USD is involved in roughly ___ of all FX volume
90%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
End of Period Rate (SCO-4 rate)
directly or indirectly

14. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
CNY
translation
exchange rate

15. Revaluation can be hedged - while ___________ cannot be hedged
two business days
translation
B/S rate
Government regulation and cost of hedging

16. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
APL rate
SFAS 52

17. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
1 Case = 2 pizzas
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Effective Hedge rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

18. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Forward Points
strengthens
Effective Hedge rate
financial risk

19. Give some examples of countries where its hard to hedge?
AUD
three digit ticker symbol ex: USD - United States Dollar
China - Malaysia - Colombia - Chile - Argentina
British Pound - Australian Dollar - New Zealand Dollar - Euro

20. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
value
Mitigates risks by using hedging techniques
Pound strengthens

21. What is the purpose of hedging?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
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
valuable

22. What is Revaluation?

23. Australian currency code is...
lost
5%
1USD
AUD

24. Direct quote- _____________=USD
3 -210 billion (3 trillion)
foreign currency* rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
interest rate differential

25. What is local currency?

26. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Treasury Daily Spot Rate
21%
actual weighted average contract rate
P&L activity

27. Hedging instrument used in Fair Value Hedge program is...
Forward Points
fx forward
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
actual weighted average contract rate

28. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
less
interest rate differential
1USD

29. 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
Pound strengthens
lost
Treasury Daily Spot Rate
exchange rate

30. 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
Oracle
Forward contracts and Options
Effective Hedge rate

31. EUR-USD currency pair accounts for about ____ of all FX volume
3 business days and beyond
15 months in advance - layering on hedges through time
30%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

32. What is reporting currency?
Used to hedge against variability in expected future cash flows
1.40 - Because I would be able to buy more euros
FX policy
Currency in which the entity reports results externally

33. What would happen if the US interest rate was bigger than Mexico?
value
13%
The calculation is the same - but instead of adding forward points you subtract
Forward Points

34. What are the four major FX accounting guidances?
downward slope
exchange one currency for another
30%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

35. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
What is happening
three digit ticker symbol ex: USD - United States Dollar
F&O account 87503
1USD

36. What are non-monetary accounts?
What is happening
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
is getting bigger
fx forward

37. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
MXN - EUR - CHF
an estimate of aggregate rate
translation
spot price x interest differential

38. How far in advance do we hedge?
foreign exchange forward contract
weakens
12%
15 months in advance - layering on hedges through time

39. Forward points multiply the exchange rate by the...
15 months in advance - layering on hedges through time
interest rate differential
30%
foreign exchange forward contract

40. What instruments do we use to hedge?
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
What is happening
21%
Forward contracts and Options

41. Hedging instrument used in cash flow program is...
currency options and forward
30%
21%
This means 1 Euro measured against US Dollars is worth $1.40

42. An ___________ expresses the value of one currency relative to another
Effective Hedge rate
exchange rate
12%
fx forward

43. 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...
an estimate of aggregate rate
Effective Hedge rate
is getting bigger
1 unit

44. __________ is used for translation of foreign currency B/S to reporting currency
directly or indirectly
foreign currency* rate
B/S rate
is getting bigger

45. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
21%
is getting bigger
90%

46. If 1 pizza = 15 USD then ____ = 1/15 pizza
End of Period Rate (SCO-4 rate)
APL rate
exchange one currency for another
1USD

47. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
three digit ticker symbol ex: USD - United States Dollar
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
more
Currency in which the entity reports results externally

48. What does it mean to hedge?
1.40 - Because I would be able to buy more euros
Treasury Daily Spot Rate
valuable
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

49. The Foreign Exchange market is the __________ market in the world
SFAS 52
interest rate differential
largest - It is open 24 hours a day - except weekends
financial strategy and financial policy

50. Treasury is responsible for managing companies funds and determining the firms'...
1.60 - Because you can buy more dollars
financial strategy and financial policy
average rate
Mitigates risks by using hedging techniques