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...
6 weeks prior to Q/E
The calculation is the same - but instead of adding forward points you subtract
AUD
90%

2. How is the hedge rate variance calculated?
CNY
exchange rate
The difference between hedge rate and final effective hedge rate
1USD

3. USD-JPY account for ____ of trading FX volume
direct
Currency of the respective operating unit's country
13%
SFAS 52

4. Where are revaluations done?
FX policy
exchange rate
Oracle
spot price x interest differential

5. When is hedge rate published?
financial strategy and financial policy
6 weeks prior to Q/E
directly or indirectly
Spot price

6. A Spot happens in...
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
two business days
The difference between hedge rate and final effective hedge rate
The calculation is the same - but instead of adding forward points you subtract

7. What dictates minimum and maximum hedge percentages?
Government regulation and cost of hedging
SEK
FX policy
What is happening

8. 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
3 -210 billion (3 trillion)
average rate
downward slope
Oracle

9. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
Forward contracts and Options
directly or indirectly
financial strategy and financial policy

10. The currency ticker for the Sweden Kroner is?
1 share = 1/3 case
90%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
SEK

11. The rules for adding or subtracting forward points depend on whether it is quoted...
weakens
Forward contracts and Options
directly or indirectly
financial risk

12. 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
3 -210 billion (3 trillion)
currency options and forward
two business days

13. ____________ is used for translation of foreign currency P&L to Reporting currency?
translation
300 billion
APL rate
foreign exchange forward contract

14. The current market price for any currency pair is referred to as ?
financial risk
90%
Mitigates risks by using hedging techniques
Spot price

15. What instruments do we use to hedge?
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.
more
exchange one currency for another

16. What is the trading in volume for FX?
strengthens
Forward Points
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
3 -210 billion (3 trillion)

17. The offset of revaluation is recorded to...
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
3 -210 billion (3 trillion)
F&O account 87503
Treasury Daily Spot Rate

18. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Pound strengthens
fx forward
What is happening

19. In general EUR-USD is involved in roughly ___ of all FX volume
6 weeks prior to Q/E
largest - It is open 24 hours a day - except weekends
90%
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

20. ____________ should be denominated in the currency they will either be paid or received in...
translation
three digit ticker symbol ex: USD - United States Dollar
direct
BS account balances

21. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
adverse fluctuations
liquidity and cash
13%
F&O account 87503

22. What is local currency?

23. Direct quote- _____________=USD
currency options and forward
exchange rate
foreign currency* rate
3 business days and beyond

24. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
an estimate of aggregate rate
financial risk
lost
Oracle

25. What is cash flow used for?
SFAS 52
300 billion
Used to hedge against variability in expected future cash flows
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

26. What is reporting currency?
less
Currency in which the entity reports results externally
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
foreign exchange forward contract

27. What rate is used to book daily transactions?
MXN - EUR - CHF
5%
Treasury Daily Spot Rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

28. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
6 weeks prior to Q/E
End of Period Rate (SCO-4 rate)
strengthens
less

29. What are some of the reason not hedge at all or partially hedge in a few countries?
APL rate
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
CNY
Government regulation and cost of hedging

30. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
This means 1 Euro measured against US Dollars is worth $1.40
Oracle
foreign currency* rate

31. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
average rate
direct
Pound strengthens
Government regulation and cost of hedging

32. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
CNY
Currency of the respective operating unit's country

33. If 1 pizza = 15 USD then ____ = 1/15 pizza
APL rate
is getting bigger
1USD
1 unit

34. 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?
5%
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
is getting bigger

35. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
End of Period Rate (SCO-4 rate)
F&O account 87503
translation

36. What is Revaluation?

37. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
13%
financial strategy and financial policy
B/S rate
three digit ticker symbol ex: USD - United States Dollar

38. Treasury is responsible for banking requirements - funding for the business and managing...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
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
financial risk
fx forward

39. An ___________ expresses the value of one currency relative to another
End of Period Rate (SCO-4 rate)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
directly or indirectly
exchange rate

40. The difference in interest rate is referred to as...
fx forward
Forward Points
AUD
strengthens

41. EUR-USD currency pair accounts for about ____ of all FX volume
30%
allow FX rate
90%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

42. Hedging instrument used in cash flow program is...
currency options and forward
6 weeks prior to Q/E
FX policy
three digit ticker symbol ex: USD - United States Dollar

43. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
directly or indirectly
BS account balances
adverse fluctuations

44. How does treasury accomplish its purpose?
actual weighted average contract rate
1.40 - Because I would be able to buy more euros
allow FX rate
Mitigates risks by using hedging techniques

45. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
Pound strengthens
lost
Current market price - spot - plus or minus the difference between the interest rates of the two countries

46. ____________ - foreign currency/rate = USD
Indirect quote
12%
13%
less

47. What rate is used on the balance sheet?
CNY
What is happening
F&O account 87503
End of Period Rate (SCO-4 rate)

48. Revaluation can be hedged - while ___________ cannot be hedged
translation
two business days
direct
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

49. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
SFAS 52
Effective Hedge rate
APL rate

50. How many currencies use Direct method of quoting?
30%
value
There are FOUR
translation