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. Australian currency code is...
AUD
largest - It is open 24 hours a day - except weekends
weakens
average rate

2. A Spot happens in...
two business days
British Pound - Australian Dollar - New Zealand Dollar - Euro
The currency of the primary economic environment in which the legal entity operates
6 weeks prior to Q/E

3. Revaluation can be hedged - while ___________ cannot be hedged
translation
lost
Currency in which the entity reports results externally
AUD

4. All other currency trading with USD accounts for ____ of FX volume
1.40 - Because I would be able to buy more euros
21%
300 billion
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

5. Give an example of one way to hedge a price increase in gas prices...
Currency in which the entity reports results externally
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
6 weeks prior to Q/E
is getting bigger

6. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
translation
directly or indirectly
value
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

7. Treasury is responsible for managing companies funds and determining the firms'...
liquidity and cash
1USD
Treasury Daily Spot Rate
financial strategy and financial policy

8. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
1 Case = 2 pizzas
1 unit
valuable
strengthens

9. What is reporting currency?
1 share = 1/3 case
spot price x interest differential
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Currency in which the entity reports results externally

10. GBP-USD account for ____ of trading FX volume
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
three digit ticker symbol ex: USD - United States Dollar
functional currency
12%

11. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
value
SFAS 52

12. What dictates minimum and maximum hedge percentages?
actual weighted average contract rate
The difference between hedge rate and final effective hedge rate
FX policy
End of Period Rate (SCO-4 rate)

13. ____________ is used for translation of foreign currency P&L to Reporting 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
APL rate
B/S rate
13%

14. What are monetary accounts?
foreign currency* rate
1 share = 1/3 case
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
is getting bigger

15. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
P&L activity
downward slope
1 share = 1/3 case

16. What is the ticker symbol for Brazilian Real?
1 unit
1.40 - Because I would be able to buy more euros
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
BRL

17. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
12%
SFAS 52
allow FX rate
currency options and forward

18. 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?
1 unit
5%
Currency in which the entity reports results externally
SFAS 52

19. A forward happens in...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
AUD
functional currency
3 business days and beyond

20. 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
Forward contracts and Options
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
F&O account 87503
downward slope

21. 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...
two business days
financial risk
SFAS 52
is getting bigger

22. 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
B/S rate
Currency in which the entity reports results externally
AUD

23. The current market price for any currency pair is referred to as ?
6 weeks prior to Q/E
Spot price
China - Malaysia - Colombia - Chile - Argentina
translation

24. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1.60 - Because you can buy more dollars
an estimate of aggregate rate
largest - It is open 24 hours a day - except weekends
21%

25. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
This means 1 Euro measured against US Dollars is worth $1.40
financial strength
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
foreign exchange forward contract

26. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
adverse fluctuations
currency options and forward

27. What is Revaluation?

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28. What is cash flow used for?
Used to hedge against variability in expected future cash flows
6 weeks prior to Q/E
CNY
Mitigates risks by using hedging techniques

29. What currencies use Direct method of quoting?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
End of Period Rate (SCO-4 rate)
British Pound - Australian Dollar - New Zealand Dollar - Euro
AUD

30. What is local currency?

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31. What are the exceptions to the ticker naming convention?
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
allow FX rate
three digit ticker symbol ex: USD - United States Dollar

32. What rate is used on the P&L?
exchange one currency for another
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
interest rate differential

33. What instruments do we use to hedge?
Oracle
Forward contracts and Options
3 -210 billion (3 trillion)
an estimate of aggregate rate

34. The difference in interest rate is referred to as...
Forward Points
downward slope
Government regulation and cost of hedging
AUD

35. 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
6 weeks prior to Q/E
SEK
13%

36. Treasury's role is to identify risk - control to prevent erosion of...
FX policy
financial strength
1USD
lost

37. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
90%
exchange one currency for another
SFAS 52
1 share = 1/3 case

38. In general EUR-USD is involved in roughly ___ of all FX volume
90%
more
Spot price
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

39. How far in advance do we hedge?
two business days
The calculation is the same - but instead of adding forward points you subtract
valuable
15 months in advance - layering on hedges through time

40. Treasury is responsible for banking requirements - funding for the business and managing...
spot price x interest differential
financial risk
Treasury Daily Spot Rate
30%

41. 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?
Effective Hedge rate
B/S rate
1.40 - Because I would be able to buy more euros
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

42. An ___________ expresses the value of one currency relative to another
exchange rate
Effective Hedge rate
Government regulation and cost of hedging
SFAS 52

43. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
APL rate
1.40 - Because I would be able to buy more euros
foreign currency* rate

44. USD-JPY account for ____ of trading FX volume
Mitigates risks by using hedging techniques
13%
Pound strengthens
adverse fluctuations

45. What is Functional Currency?
F&O account 87503
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
The currency of the primary economic environment in which the legal entity operates

46. When is hedge rate published?
less
6 weeks prior to Q/E
There are FOUR
functional currency

47. Hedging instrument used in Fair Value Hedge program is...
fx forward
strengthens
value
300 billion

48. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
British Pound - Australian Dollar - New Zealand Dollar - Euro
BS account balances
6 weeks prior to Q/E

49. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
spot price x interest differential
Treasury Daily Spot Rate
End of Period Rate (SCO-4 rate)

50. What are the four major FX accounting guidances?
90%
an estimate of aggregate rate
1 unit
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging