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. Treasury is responsible for banking requirements - funding for the business and managing...
Currency in which the entity reports results externally
fx forward
financial risk
The difference between hedge rate and final effective hedge rate

2. Direct quote- _____________=USD
APL rate
exchange one currency for another
foreign currency* rate
F&O account 87503

3. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
Used to hedge against variability in expected future cash flows
15 months in advance - layering on hedges through time
directly or indirectly

4. US Treasuries is the second highest trading volume accounting for...
The difference between hedge rate and final effective hedge rate
Currency of the respective operating unit's country
300 billion
exchange rate

5. What would happen if the US interest rate was bigger than Mexico?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Used to hedge against variability in expected future cash flows
foreign exchange forward contract
The calculation is the same - but instead of adding forward points you subtract

6. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
BRL
Currency of the respective operating unit's country
exchange one currency for another
Forward contracts and Options

7. Hedging instrument used in cash flow program is...
currency options and forward
F&O account 87503
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
British Pound - Australian Dollar - New Zealand Dollar - Euro

8. How is the price of the forward contract determined?
valuable
allow FX rate
lost
Current market price - spot - plus or minus the difference between the interest rates of the two countries

9. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
value
There are FOUR
valuable
spot price x interest differential

10. What is local currency?

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11. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
value
300 billion
Mitigates risks by using hedging techniques

12. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
weakens
End of Period Rate (SCO-4 rate)
6 weeks prior to Q/E

13. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
translation
P&L activity
more
financial strategy and financial policy

14. What is Revaluation?

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15. Treasury ensures that companies have ____________ to meet its obligations
Currency in which the entity reports results externally
liquidity and cash
direct
Current market price - spot - plus or minus the difference between the interest rates of the two countries

16. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
3 -210 billion (3 trillion)
Currency of the respective operating unit's country
End of Period Rate (SCO-4 rate)

17. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
three digit ticker symbol ex: USD - United States Dollar
an estimate of aggregate rate
1.40 - Because I would be able to buy more euros
5%

18. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
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
1 unit
adverse fluctuations
AUD

19. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Effective Hedge rate
13%
actual weighted average contract rate
1USD

20. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
Government regulation and cost of hedging
6 weeks prior to Q/E
1.60 - Because you can buy more dollars
functional currency

21. A Spot happens in...
End of Period Rate (SCO-4 rate)
China - Malaysia - Colombia - Chile - Argentina
two business days
B/S rate

22. EUR-USD currency pair accounts for about ____ of all FX volume
30%
three digit ticker symbol ex: USD - United States Dollar
90%
translation

23. How many currencies use Direct method of quoting?
There are FOUR
is getting bigger
allow FX rate
12%

24. The currency ticker for the Sweden Kroner is?
P&L activity
21%
adverse fluctuations
SEK

25. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
The calculation is the same - but instead of adding forward points you subtract
adverse fluctuations
direct
Effective Hedge rate

26. 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?
translation
financial strategy and financial policy
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1.40 - Because I would be able to buy more euros

27. ____________ should be denominated in the currency they will either be paid or received in...
Currency in which the entity reports results externally
BS account balances
There are FOUR
less

28. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
Forward contracts and Options
exchange one currency for another
1 Case = 2 pizzas
actual weighted average contract rate

29. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
21%
financial strategy and financial policy
more

30. How far in advance do we hedge?
30%
15 months in advance - layering on hedges through time
financial strength
financial risk

31. 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
currency options and forward
AUD
Pound strengthens
1 share = 1/3 case

32. ____________ is used for translation of foreign currency P&L to Reporting currency?
two business days
foreign currency* rate
Spot price
APL rate

33. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
interest rate differential
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
functional currency

34. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
two business days
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
12%

35. 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
lost
Currency of the respective operating unit's country
downward slope
There are FOUR

36. __________ is used for translation of foreign currency B/S to reporting currency
1USD
B/S rate
Treasury Daily Spot Rate
F&O account 87503

37. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
foreign exchange forward contract
BRL
three digit ticker symbol ex: USD - United States Dollar

38. What rate is used on the balance sheet?
90%
3 -210 billion (3 trillion)
End of Period Rate (SCO-4 rate)
Mitigates risks by using hedging techniques

39. Forward points multiply the exchange rate by the...
financial risk
1.40 - Because I would be able to buy more euros
interest rate differential
downward slope

40. Hedging instrument used in Fair Value Hedge program is...
financial strength
1.40 - Because I would be able to buy more euros
fx forward
financial risk

41. What are non-monetary accounts?
foreign currency* rate
6 weeks prior to Q/E
The calculation is the same - but instead of adding forward points you subtract
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

42. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
liquidity and cash
Effective Hedge rate
downward slope
directly or indirectly

43. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
P&L activity
actual weighted average contract rate
90%

44. The rules for adding or subtracting forward points depend on whether it is quoted...
Currency in which the entity reports results externally
more
British Pound - Australian Dollar - New Zealand Dollar - Euro
directly or indirectly

45. The current market price for any currency pair is referred to as ?
Spot price
financial risk
China - Malaysia - Colombia - Chile - Argentina
30%

46. GBP-USD account for ____ of trading FX volume
90%
exchange rate
12%
Government regulation and cost of hedging

47. USD-JPY account for ____ of trading FX volume
SEK
13%
direct
What is happening

48. What is cash flow used for?
Mitigates risks by using hedging techniques
There are FOUR
Used to hedge against variability in expected future cash flows
spot price x interest differential

49. The difference in interest rate is referred to as...
Government regulation and cost of hedging
5%
foreign currency* rate
Forward Points

50. How does treasury accomplish its purpose?
SEK
30%
an estimate of aggregate rate
Mitigates risks by using hedging techniques