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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 rate is used on the P&L?
15 months in advance - layering on hedges through time
Pound strengthens
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

2. The rules for adding or subtracting forward points depend on whether it is quoted...
Treasury Daily Spot Rate
weakens
directly or indirectly
1 unit

3. A forward happens in...
3 business days and beyond
What is happening
5%
F&O account 87503

4. Give an example of one way to hedge a price increase in gas prices...
There are FOUR
valuable
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
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

5. 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
15 months in advance - layering on hedges through time
average rate
downward slope

6. 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?
directly or indirectly
5%
1.60 - Because you can buy more dollars
The calculation is the same - but instead of adding forward points you subtract

7. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
30%
foreign currency* 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

8. Revaluation can be hedged - while ___________ cannot be hedged
Pound strengthens
21%
translation
F&O account 87503

9. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
What is happening
F&O account 87503
foreign exchange forward contract
is getting bigger

10. An ___________ expresses the value of one currency relative to another
Current market price - spot - plus or minus the difference between the interest rates of the two countries
APL rate
downward slope
exchange rate

11. What rate is used to book daily transactions?
functional currency
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
Treasury Daily Spot Rate
more

12. Direct quote- _____________=USD
foreign currency* rate
3 business days and beyond
average rate
directly or indirectly

13. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
adverse fluctuations
more
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

14. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 unit
MXN - EUR - CHF
1 Case = 2 pizzas
B/S rate

15. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
13%
AUD
an estimate of aggregate rate

16. 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
spot price x interest differential
Pound strengthens
Forward contracts and Options
1.40 - Because I would be able to buy more euros

17. What is Fair Value hedge program used for?
BS account balances
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
weakens
1 unit

18. What is reporting currency?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 -210 billion (3 trillion)
directly or indirectly
Currency in which the entity reports results externally

19. 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...
B/S rate
largest - It is open 24 hours a day - except weekends
exchange one currency for another
is getting bigger

20. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Government regulation and cost of hedging
Effective Hedge rate
SEK
Pound strengthens

21. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
financial strategy and financial policy
CNY
15 months in advance - layering on hedges through time

22. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
1.40 - Because I would be able to buy more euros
less
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
three digit ticker symbol ex: USD - United States Dollar

23. Treasury's role is to identify risk - control to prevent erosion of...
300 billion
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
financial strength
Pound strengthens

24. What is the ticker symbol for Brazilian Real?
BRL
1.60 - Because you can buy more dollars
Forward contracts and Options
China - Malaysia - Colombia - Chile - Argentina

25. When is hedge rate published?
F&O account 87503
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
6 weeks prior to Q/E
allow FX rate

26. EUR-USD currency pair accounts for about ____ of all FX volume
BS account balances
30%
financial strategy and financial policy
directly or indirectly

27. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
foreign exchange forward contract
translation
is getting bigger

28. The currency ticker for the Sweden Kroner is?
Mitigates risks by using hedging techniques
1 share = 1/3 case
an estimate of aggregate rate
SEK

29. Hedging instrument used in cash flow program is...
currency options and forward
APL rate
Pound strengthens
SEK

30. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
5%
30%
1.40 - Because I would be able to buy more euros
valuable

31. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
SFAS 52
Mitigates risks by using hedging techniques

32. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
90%
strengthens
The currency of the primary economic environment in which the legal entity operates

33. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
is getting bigger
SFAS 52
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

34. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
Oracle
weakens
direct

35. __________ is used for translation of foreign currency B/S to reporting currency
Government regulation and cost of hedging
B/S rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
15 months in advance - layering on hedges through time

36. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
spot price x interest differential
P&L activity
Indirect quote
financial strategy and financial policy

37. Hedging instrument used in Fair Value Hedge program is...
1.60 - Because you can buy more dollars
fx forward
1USD
Mitigates risks by using hedging techniques

38. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
valuable
1 share = 1/3 case
an estimate of aggregate rate
1.40 - Because I would be able to buy more euros

39. What is Revaluation?

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40. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
Currency in which the entity reports results externally
The currency of the primary economic environment in which the legal entity operates
15 months in advance - layering on hedges through time
allow FX rate

41. What instruments do we use to hedge?
China - Malaysia - Colombia - Chile - Argentina
Forward contracts and Options
two business days
Pound strengthens

42. What are some of the reason not hedge at all or partially hedge in a few countries?
CNY
is getting bigger
Government regulation and cost of hedging
less

43. The Foreign Exchange market is the __________ market in the world
Effective Hedge rate
largest - It is open 24 hours a day - except weekends
Treasury Daily Spot Rate
downward slope

44. A Spot happens in...
two business days
Forward Points
The difference between hedge rate and final effective hedge rate
BS account balances

45. What is local currency?

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46. What are monetary accounts?
3 business days and beyond
3 -210 billion (3 trillion)
Indirect quote
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

47. B/S rate is used for revaluation of foreign currency transaction to...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
BRL
functional currency
CNY

48. ____________ - foreign currency/rate = USD
exchange rate
Spot price
SEK
Indirect quote

49. What is the purpose of hedging?
Oracle
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
allow FX rate
1 unit

50. ____________ should be denominated in the currency they will either be paid or received in...
strengthens
BS account balances
functional currency
exchange one currency for another