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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. 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
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
End of Period Rate (SCO-4 rate)
downward slope
1.60 - Because you can buy more dollars

2. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
5%
directly or indirectly
1.60 - Because you can buy more dollars
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

3. USD-JPY account for ____ of trading FX volume
adverse fluctuations
3 -210 billion (3 trillion)
30%
13%

4. 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
12%
What is happening
China - Malaysia - Colombia - Chile - Argentina

5. What is the ticker symbol for Brazilian Real?
currency options and forward
Forward Points
BRL
actual weighted average contract rate

6. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
actual weighted average contract rate
foreign currency* rate
exchange one currency for another

7. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
value
90%
12%

8. Treasury's role is to identify risk - control to prevent erosion of...
downward slope
is getting bigger
financial strength
SEK

9. How far in advance do we hedge?
15 months in advance - layering on hedges through time
financial risk
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
6 weeks prior to Q/E

10. What are the exceptions to the ticker naming convention?
5%
MXN - EUR - CHF
Spot price
1.60 - Because you can buy more dollars

11. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
two business days
P&L activity
is getting bigger
Forward Points

12. A Spot happens in...
downward slope
exchange one currency for another
two business days
90%

13. What rate is used to book daily transactions?
Treasury Daily Spot Rate
liquidity and cash
British Pound - Australian Dollar - New Zealand Dollar - Euro
3 -210 billion (3 trillion)

14. The Foreign Exchange market is the __________ market in the world
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
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial strategy and financial policy
largest - It is open 24 hours a day - except weekends

15. 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...
Used to hedge against variability in expected future cash flows
is getting bigger
SEK
functional currency

16. What is cash flow used for?
average rate
Used to hedge against variability in expected future cash flows
3 business days and beyond
BRL

17. An ___________ expresses the value of one currency relative to another
Pound strengthens
exchange rate
1USD
valuable

18. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
an estimate of aggregate rate
valuable
liquidity and cash
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

19. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
Mitigates risks by using hedging techniques
strengthens
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

20. If 1 pizza = 15 USD then ____ = 1/15 pizza
This means 1 Euro measured against US Dollars is worth $1.40
1 unit
3 -210 billion (3 trillion)
1USD

21. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
fx forward
13%
interest rate differential

22. A forward happens in...
BRL
3 business days and beyond
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Spot price

23. ____________ - foreign currency/rate = USD
is getting bigger
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Indirect quote
currency options and forward

24. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
This means 1 Euro measured against US Dollars is worth $1.40
3 business days and beyond
Effective Hedge rate
300 billion

25. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
value
AUD
functional currency

26. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
largest - It is open 24 hours a day - except weekends
lost
FX policy
liquidity and cash

27. What is reporting currency?
There are FOUR
SEK
APL rate
Currency in which the entity reports results externally

28. Direct quote- _____________=USD
foreign currency* rate
Mitigates risks by using hedging techniques
CNY
SFAS 52

29. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
liquidity and cash
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
fx forward
three digit ticker symbol ex: USD - United States Dollar

30. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Used to hedge against variability in expected future cash flows
MXN - EUR - CHF
direct

31. 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
1 Case = 2 pizzas
3 -210 billion (3 trillion)
13%

32. The current market price for any currency pair is referred to as ?
B/S rate
The calculation is the same - but instead of adding forward points you subtract
currency options and forward
Spot price

33. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
fx forward
strengthens
interest rate differential
functional currency

34. Forward points is equal to...
spot price x interest differential
BRL
1 Case = 2 pizzas
1.40 - Because I would be able to buy more euros

35. What instruments do we use to hedge?
Treasury Daily Spot Rate
Forward contracts and Options
foreign exchange forward contract
financial strength

36. What is Revaluation?

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37. __________ is used for translation of foreign currency B/S to reporting currency
13%
B/S rate
BRL
300 billion

38. How do you read EUR-USD = 1.40
allow FX rate
APL rate
interest rate differential
This means 1 Euro measured against US Dollars is worth $1.40

39. What are non-monetary accounts?
Treasury Daily Spot Rate
5%
strengthens
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

40. Treasury is responsible for banking requirements - funding for the business and managing...
value
APL rate
30%
financial risk

41. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
3 business days and beyond
Oracle
foreign exchange forward contract
BS account balances

42. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
F&O account 87503
1 Case = 2 pizzas
The calculation is the same - but instead of adding forward points you subtract
British Pound - Australian Dollar - New Zealand Dollar - Euro

43. In general EUR-USD is involved in roughly ___ of all FX volume
CNY
Treasury Daily Spot Rate
30%
90%

44. Treasury is responsible for managing companies funds and determining the firms'...
Mitigates risks by using hedging techniques
financial strategy and financial policy
lost
3 -210 billion (3 trillion)

45. What would happen if the US interest rate was bigger than Mexico?
weakens
exchange rate
What is happening
The calculation is the same - but instead of adding forward points you subtract

46. Forward points multiply the exchange rate by the...
interest rate differential
MXN - EUR - CHF
fx forward
FX policy

47. ____________ is used for translation of foreign currency P&L to Reporting currency?
3 business days and beyond
APL rate
Mitigates risks by using hedging techniques
3 -210 billion (3 trillion)

48. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
direct
1 Case = 2 pizzas
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

49. Australian currency code is...
financial risk
average rate
13%
AUD

50. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
This means 1 Euro measured against US Dollars is worth $1.40
The currency of the primary economic environment in which the legal entity operates
adverse fluctuations