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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. What dictates minimum and maximum hedge percentages?
allow FX rate
direct
FX policy
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

2. Forward points multiply the exchange rate by the...
interest rate differential
China - Malaysia - Colombia - Chile - Argentina
1.60 - Because you can buy more dollars
less

3. What currencies use Direct method of quoting?
1 unit
translation
liquidity and cash
British Pound - Australian Dollar - New Zealand Dollar - Euro

4. Australian currency code is...
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
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
AUD
BS account balances

5. How do you read EUR-USD = 1.40
F&O account 87503
This means 1 Euro measured against US Dollars is worth $1.40
1 share = 1/3 case
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

6. Treasury is responsible for managing companies funds and determining the firms'...
Currency of the respective operating unit's country
1.40 - Because I would be able to buy more euros
SEK
financial strategy and financial policy

7. 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
3 business days and beyond
exchange rate
The difference between hedge rate and final effective hedge rate

8. What are non-monetary accounts?
strengthens
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
13%

9. A forward happens in...
APL rate
financial strategy and financial policy
3 business days and beyond
Currency of the respective operating unit's country

10. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
AUD
30%
weakens
three digit ticker symbol ex: USD - United States Dollar

11. USD-JPY account for ____ of trading FX volume
1 Case = 2 pizzas
largest - It is open 24 hours a day - except weekends
3 -210 billion (3 trillion)
13%

12. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
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
downward slope

13. EUR-USD currency pair accounts for about ____ of all FX volume
30%
directly or indirectly
1.40 - Because I would be able to buy more euros
British Pound - Australian Dollar - New Zealand Dollar - Euro

14. The currency ticker for the Sweden Kroner is?
SEK
1 Case = 2 pizzas
APL rate
value

15. Hedging instrument used in Fair Value Hedge program is...
P&L activity
fx forward
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
12%

16. When is hedge rate published?
Used to hedge against variability in expected future cash flows
6 weeks prior to Q/E
5%
1 Case = 2 pizzas

17. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
1USD
is getting bigger
two business days

18. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
more
300 billion
three digit ticker symbol ex: USD - United States Dollar

19. 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
Government regulation and cost of hedging
B/S rate
weakens

20. What is the trading in volume for FX?
directly or indirectly
BS account balances
P&L activity
3 -210 billion (3 trillion)

21. What is the purpose of hedging?
BRL
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
There are FOUR
End of Period Rate (SCO-4 rate)

22. How does treasury accomplish its purpose?
China - Malaysia - Colombia - Chile - Argentina
less
13%
Mitigates risks by using hedging techniques

23. What instruments do we use to hedge?
There are FOUR
Government regulation and cost of hedging
Forward contracts and Options
BRL

24. What is Revaluation?

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25. The offset of revaluation is recorded to...
valuable
F&O account 87503
1 Case = 2 pizzas
value

26. The difference in interest rate is referred to as...
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1 unit
AUD
Forward Points

27. 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?
13%
SFAS 52
Forward contracts and Options
1.40 - Because I would be able to buy more euros

28. GBP-USD account for ____ of trading FX volume
fx forward
12%
two business days
MXN - EUR - CHF

29. What are some of the reason not hedge at all or partially hedge in a few countries?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
British Pound - Australian Dollar - New Zealand Dollar - Euro
Forward Points
Government regulation and cost of hedging

30. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
15 months in advance - layering on hedges through time
less
Pound strengthens
1.60 - Because you can buy more dollars

31. If 1 pizza = 15 USD then ____ = 1/15 pizza
an estimate of aggregate rate
financial risk
1USD
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

32. Revaluation can be hedged - while ___________ cannot be hedged
average rate
translation
fx forward
90%

33. 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?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
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
largest - It is open 24 hours a day - except weekends
5%

34. The rules for adding or subtracting forward points depend on whether it is quoted...
Forward contracts and Options
1USD
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
directly or indirectly

35. ____________ is used for translation of foreign currency P&L to Reporting currency?
There are FOUR
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
APL rate
functional currency

36. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Treasury Daily Spot Rate
exchange one currency for another
direct
6 weeks prior to Q/E

37. 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
Pound strengthens
value
MXN - EUR - CHF

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

39. Treasury's role is to identify risk - control to prevent erosion of...
Currency of the respective operating unit's country
1.60 - Because you can buy more dollars
financial strength
F&O account 87503

40. What is local currency?

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41. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
CNY
SFAS 52
Mitigates risks by using hedging techniques
foreign exchange forward contract

42. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
interest rate differential
P&L activity
30%
currency options and forward

43. ____________ - foreign currency/rate = USD
AUD
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
British Pound - Australian Dollar - New Zealand Dollar - Euro
Indirect quote

44. What are the four major FX accounting guidances?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
lost
6 weeks prior to Q/E
B/S rate

45. How far in advance do we hedge?
currency options and forward
15 months in advance - layering on hedges through time
Indirect quote
average rate

46. What are the exceptions to the ticker naming convention?
There are FOUR
CNY
MXN - EUR - CHF
12%

47. All other currency trading with USD accounts for ____ of FX volume
functional currency
financial strategy and financial policy
21%
The difference between hedge rate and final effective hedge rate

48. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
SEK
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)
Effective Hedge rate

49. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
Government regulation and cost of hedging
spot price x interest differential
average rate

50. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
currency options and forward
exchange one currency for another
adverse fluctuations
The calculation is the same - but instead of adding forward points you subtract