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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. Treasury is responsible for managing companies funds and determining the firms'...
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strategy and financial policy
Mitigates risks by using hedging techniques

2. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
1 Case = 2 pizzas
SFAS 52
foreign exchange forward contract
weakens

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
strengthens
allow FX rate
value
direct

4. What rate is used on the balance sheet?
1 unit
21%
End of Period Rate (SCO-4 rate)
12%

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

6. What are monetary accounts?
lost
value
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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

7. US Treasuries is the second highest trading volume accounting for...
300 billion
B/S rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
lost

8. Give an example of one way to hedge a price increase in gas prices...
spot price x interest differential
3 business days and beyond
less
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

9. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
valuable
1 Case = 2 pizzas
largest - It is open 24 hours a day - except weekends
Currency of the respective operating unit's country

10. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
fx forward
6 weeks prior to Q/E
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

11. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
actual weighted average contract rate
less
financial strategy and financial policy

12. How many currencies use Direct method of quoting?
90%
financial strength
1USD
There are FOUR

13. 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?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
financial strategy and financial policy
5%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

14. What is Revaluation?

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15. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
BS account balances
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
1.60 - Because you can buy more dollars
weakens

16. ____________ should be denominated in the currency they will either be paid or received in...
average rate
The calculation is the same - but instead of adding forward points you subtract
Government regulation and cost of hedging
BS account balances

17. The difference in interest rate is referred to as...
more
Forward Points
translation
15 months in advance - layering on hedges through time

18. EUR-USD currency pair accounts for about ____ of all FX volume
financial strength
APL rate
30%
less

19. The current market price for any currency pair is referred to as ?
Spot price
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
is getting bigger
End of Period Rate (SCO-4 rate)

20. Forward points multiply the exchange rate by the...
1 unit
Treasury Daily Spot Rate
Indirect quote
interest rate differential

21. What is the purpose of hedging?
Oracle
This means 1 Euro measured against US Dollars is worth $1.40
translation
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

22. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
SFAS 52
weakens
What is happening
more

23. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
directly or indirectly
two business days
strengthens
Treasury Daily Spot Rate

24. USD-JPY account for ____ of trading FX volume
MXN - EUR - CHF
adverse fluctuations
The difference between hedge rate and final effective hedge rate
13%

25. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
adverse fluctuations
Pound strengthens
APL rate
actual weighted average contract rate

26. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
The difference between hedge rate and final effective hedge rate
liquidity and cash
China - Malaysia - Colombia - Chile - Argentina
an estimate of aggregate rate

27. The currency ticker for the Sweden Kroner is?
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
SEK
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
BRL

28. How do you read EUR-USD = 1.40
12%
CNY
This means 1 Euro measured against US Dollars is worth $1.40
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

29. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
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
21%
three digit ticker symbol ex: USD - United States Dollar

30. __________ is used for translation of foreign currency B/S to reporting currency
21%
more
B/S rate
Oracle

31. A forward happens in...
B/S rate
1USD
3 business days and beyond
Current market price - spot - plus or minus the difference between the interest rates of the two countries

32. What is the ticker symbol for Brazilian Real?
BRL
foreign exchange forward contract
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
lost

33. ____________ - foreign currency/rate = USD
valuable
Indirect quote
Spot price
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

34. Direct quote- _____________=USD
lost
B/S 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

35. What is Fair Value hedge program used for?
adverse fluctuations
FX policy
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
foreign exchange forward contract

36. An ___________ expresses the value of one currency relative to another
Indirect quote
financial strategy and financial policy
P&L activity
exchange rate

37. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
an estimate of aggregate rate
1 share = 1/3 case
two business days

38. B/S rate is used for revaluation of foreign currency transaction to...
BRL
functional currency
Treasury Daily Spot Rate
There are FOUR

39. What dictates minimum and maximum hedge percentages?
Government regulation and cost of hedging
an estimate of aggregate rate
FX policy
APL rate

40. What is cash flow used for?
300 billion
1USD
Used to hedge against variability in expected future cash flows
weakens

41. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
liquidity and cash
FX policy
P&L activity
SFAS 52

42. What does it mean to hedge?
financial strategy and financial policy
1 Case = 2 pizzas
APL rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

43. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
F&O account 87503
The calculation is the same - but instead of adding forward points you subtract
What is happening
exchange one currency for another

44. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
There are FOUR
MXN - EUR - CHF
1.60 - Because you can buy more dollars

45. What are non-monetary accounts?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Forward contracts and Options
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
6 weeks prior to Q/E

46. 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?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
1.40 - Because I would be able to buy more euros
5%
average rate

47. What is Functional Currency?
12%
End of Period Rate (SCO-4 rate)
is getting bigger
The currency of the primary economic environment in which the legal entity operates

48. What rate is used to book daily transactions?
average rate
Forward Points
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Treasury Daily Spot Rate

49. Hedging instrument used in Fair Value Hedge program is...
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
functional currency
fx forward
6 weeks prior to Q/E

50. What is the trading in volume for FX?
3 -210 billion (3 trillion)
MXN - EUR - CHF
1.40 - Because I would be able to buy more euros
British Pound - Australian Dollar - New Zealand Dollar - Euro

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Foreign Exchange Essentials

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