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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. How is the price of the forward contract determined?
90%
AUD
Current market price - spot - plus or minus the difference between the interest rates of the two countries
12%

2. 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
1 Case = 2 pizzas
two business days
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
downward slope

3. What are the four major FX accounting guidances?
spot price x interest differential
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
allow FX rate
Effective Hedge rate

4. What is the purpose of hedging?
liquidity and cash
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
Currency of the respective operating unit's country
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

5. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
15 months in advance - layering on hedges through time
CNY
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

6. The offset of revaluation is recorded to...
direct
F&O account 87503
downward slope
functional currency

7. GBP-USD account for ____ of trading FX volume
Indirect quote
British Pound - Australian Dollar - New Zealand Dollar - Euro
12%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

8. When is hedge rate published?
1 Case = 2 pizzas
90%
6 weeks prior to Q/E
Oracle

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

10. Where are revaluations done?
6 weeks prior to Q/E
interest rate differential
currency options and forward
Oracle

11. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
5%
SFAS 52
21%

12. Treasury is responsible for managing companies funds and determining the firms'...
directly or indirectly
B/S rate
financial strategy and financial policy
Currency in which the entity reports results externally

13. How is the hedge rate variance calculated?
is getting bigger
13%
The difference between hedge rate and final effective hedge rate
21%

14. What is reporting currency?
Currency in which the entity reports results externally
Forward contracts and Options
Treasury Daily Spot Rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries

15. Treasury is responsible for banking requirements - funding for the business and managing...
directly or indirectly
Indirect quote
financial risk
6 weeks prior to Q/E

16. In general EUR-USD is involved in roughly ___ of all FX volume
interest rate differential
liquidity and cash
MXN - EUR - CHF
90%

17. The Foreign Exchange market is the __________ market in the world
two business days
largest - It is open 24 hours a day - except weekends
P&L activity
actual weighted average contract rate

18. The timing of when we execute hedges drastically impacts the ____________ we achieve
functional currency
lost
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
average rate

19. What are some of the reason not hedge at all or partially hedge in a few countries?
allow FX rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Government regulation and cost of hedging
1.40 - Because I would be able to buy more euros

20. B/S rate is used for revaluation of foreign currency transaction to...
currency options and forward
6 weeks prior to Q/E
functional currency
spot price x interest differential

21. The current market price for any currency pair is referred to as ?
Spot price
12%
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The difference between hedge rate and final effective hedge rate

22. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
three digit ticker symbol ex: USD - United States Dollar
actual weighted average contract rate
FX policy

23. What are the exceptions to the ticker naming convention?
1.60 - Because you can buy more dollars
BRL
Spot price
MXN - EUR - CHF

24. A forward happens in...
1 Case = 2 pizzas
AUD
3 -210 billion (3 trillion)
3 business days and beyond

25. What instruments do we use to hedge?
Forward contracts and Options
Effective Hedge rate
Oracle
spot price x interest differential

26. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
1 share = 1/3 case
translation
less
1 Case = 2 pizzas

27. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
currency options and forward
exchange one currency for another
1 unit

28. US Treasuries is the second highest trading volume accounting for...
SFAS 52
direct
300 billion
allow FX rate

29. The difference in interest rate is referred to as...
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
90%
Forward Points
spot price x interest differential

30. What rate is used to book daily transactions?
Treasury Daily Spot Rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
direct
three digit ticker symbol ex: USD - United States Dollar

31. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
Currency of the respective operating unit's country
5%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

32. All other currency trading with USD accounts for ____ of FX volume
CNY
21%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Effective Hedge rate

33. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
30%
spot price x interest differential
is getting bigger

34. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
Currency in which the entity reports results externally
downward slope
Forward contracts and Options

35. What is currency Translation?

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36. EUR-USD currency pair accounts for about ____ of all FX volume
5%
30%
valuable
Indirect quote

37. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
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
fx forward
three digit ticker symbol ex: USD - United States Dollar
APL rate

38. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
3 -210 billion (3 trillion)
British Pound - Australian Dollar - New Zealand Dollar - Euro
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
1.60 - Because you can buy more dollars

39. Revaluation can be hedged - while ___________ cannot be hedged
lost
translation
21%
What is happening

40. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
British Pound - Australian Dollar - New Zealand Dollar - Euro
financial strategy and financial policy
1 Case = 2 pizzas

41. What is the ticker symbol for Brazilian Real?
BRL
largest - It is open 24 hours a day - except weekends
CNY
3 business days and beyond

42. 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
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
CNY
value

43. The ticker symbol for the Chinese Yuan
CNY
SFAS 52
value
an estimate of aggregate rate

44. ____________ - foreign currency/rate = USD
B/S rate
SFAS 52
The calculation is the same - but instead of adding forward points you subtract
Indirect quote

45. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
F&O account 87503
This means 1 Euro measured against US Dollars is worth $1.40
strengthens
directly or indirectly

46. Forward points multiply the exchange rate by the...
Mitigates risks by using hedging techniques
interest rate differential
less
Currency of the respective operating unit's country

47. 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
90%
Oracle
Pound strengthens

48. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
30%
The difference between hedge rate and final effective hedge rate
SFAS 52
5%

49. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
less
6 weeks prior to Q/E
MXN - EUR - CHF

50. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
Mitigates risks by using hedging techniques
SEK
an estimate of aggregate rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing